Few Things:
One, glitchy. I get pretty far in the game just for it to lock up. This happened twice. I understand that you don't know what the problem is, but I hope you investigate so that this doesn't happen in the sequel.
Two, controls were iffy, and the method of teaching them was very weak. I had to restart the game the first time I played because I accidentally opened the menu and I couldn't close it. In the end, i learned how stuff works by button mashing :P
And please, if you don't change anything else, PLEASE, PLEASE do not make 'x' an action button. A box with an 'x' in the lower right corner of dialog boxes typically mean 'close' or 'next', NOT 'press x to continue'.
Three, yes, I am going to say it. Wtf Nightmare. Beatable yes, Unnecessarily difficult: yes, nice touch: yes, too much lost after losing to the nightmare: yes. I do believe there should be a penalty, but none such as severe as it is. I understand that 'nightmares are supposed to be difficult', but this is a bit absured. And even moreso, if there are nightmares, shouldnt there be dreams?
Four: You have great ideas. From a creativity standpoint, this is an excellent game. I love how the game works, especially when it comes to gaining stats and added abilities, either complete a challenge, or spend gems, or do neither and still fare out okay.
Five: I understand the complexity and the effort that has to go into this production, but don't publish it if it's quality is sub par.
3/10: I really, really want to rate it a zero or one, but the creativity is solid.
p.s. dont brag about a sequel when your first isn't strong.