Way ahead of its time, with Nancy having grown into a champion of mental health by 1987 (!) I can see Dream Warriors usurping the original within the next decade. The nightmares reach their creative peak here, with the onslaught of worm Freddy, puppeteer freddy, and tv Freddy all happening within a blistering 20 minutes of horror. 

The adorably brief scene inside the Catholic Church even gives Dr Chauvinist some much needed character. The d & d nerd death was terribly disrespectful (in the best possible way). 
Scattered thought: why does the Freddy Krueger skeleton celebrate like a Tusken Raider?