Finally saw it

He wasn't dreaming. Two different timelines were existing at the same time. The timeline in which Donnie gets hit by the engine and dies is the universe that Donnie "chooses" and its consequences continue on into the future. The universe in which Donnie is NOT hit by the engine is what we see. It is a split in the time steam and is destined to cease to exist. Like if you traveled back in time and killed your parents, there would have to be two separate timelines created: one in which you were born and could do the killing and one in which you don't exist. When those two timelines reach the moment when you came back in time from, a single future must manifest. The one you put in motion: the one without you. This effectively means the genocide of every living being in the alternate timeline.

I love this movie. I like how there are denizens of the split reality that somehow know that they are doomed and the creepy cult-like following there is around that knowledge.