I can't say I agree with it... Lavos did reproduce. He had children, several for that matter.
All life has basic needs alien or not - Gain energy and reproduce to expand their race. Sure maybe Lavos doesn't need to eat (plants don't need to eat one can say... another can argue that photosynthesis is simply the style of eating for plants, end result is they get energy as does Lavos through sucking a planet dry) , and maybe he reproduces the way a bacteria does... (I doubt it.) but he still has to reproduce.
Where would he come from then? In order for there to be an intelligent being (as the whole dream theory states), it must have evolved (evolution is accepted in the CT world... get used to it, cuz humans evolved from apes... we see that from CT, and its referred to by the dwarves in CC) from underformed life. But in order to reach this stage they would have to go through generations of genetical changes. *Gasp* Generation. Could that mean... REPRODUCTION? Yes.
Lavos does not even begin to resemble earth life (at most something like a tubeworm or leech, or a porcupine if you look at its exterior), but it is living. And living things go through life cycles. AKA They are born, they have children, they die. Unless they are sterile or don't want to have children... then they are born and they die. But you cannot be born out of nowhere.
The only way your theory would work is if the essential molecules of life all suddenly conviently positioned itself to form a beast that may be the size of a mountain. While there is a theoretical quantum probability for that... I doubt it occured.
