Ian Cutler and Gary Carpenter mention it but there is no evidence left of it other than than the 27 seconds we hear of its music in the trailer* from :39 to 1:09 (cued up in the link.) See Steve P’s page for their recollections of it. (Search for “dream" on that page.) Who knows how long it really lasted. It was very expensive and difficult to put together musically and cinematically. It has never been seen by anyone not involved with its making. *I am assuming this trailer was what was used in theaters when it was released. I don't know if this was used in the US or the UK or both.
Ian recalls that the sequence seems to have had at least these features: “a kaleidoscope of images, a huge egg-shaped stone is revolving faster and faster. Also the woman in the churchyard who is feeding the baby has the egg in her hand and crushes it.”
Gary describes it on his website: "As it was an important part of my job to insure that music accurately synched to picture, I have a vivid memory of having to score a phenomonally complex dream sequence for Howie [remember, this was pre-computers, so you had to operate off the editor's frame-by-frame breakdown - we had no dedicated sound editor either] which was like post-scoring an animation, it was so intricate. The fades and dissolves and extensive use of library footage [the snails were library, by the way] for this sequence seriously dented the budget. Despite Robin Hardy's enthusiasm for it and its inclusion in what I assumed at the time to be 'The Director's Cut', I have never seen reference made to it again and it is in no existing version of the film."
Gary adds (in a Facebook post of 11/18/15):
"It disappeared. And it was expensive to process as it involved a lot of dissolves. Maybe they were eating up the remaining British Lion budget before it was subsumed into EMI. Who knows?"
I asked where it was recorded: "Definitely recorded post-production at Shepperton. And it wasn't in the script. I believe it was inserted to soak up spare budget before the EMI take-over - it was a collage made up of bits of the film and some stock footage; very costly apparently! The film itself was only made because of the impending take-over (that's common knowledge). It was just me and the chaps on screen."
We also have this memory from Simon (last name withheld for now): it sounds like him acting out what we see of Diane Cilento's tarot card which is seen on the ceiling for the Gently Johnny scene. I suspect it was shot as part of the dream sequence but have no proof: (Britt) "said that the beach riding scene shots were ‘fantastic’, well the horse, as mentioned took off like a rocket leaving me lying on my back with my feet in the air then on its back, so I stood up using the flagpole in a leather sling pouch round it’s neck, to balance and amidst every bird one can think of flying around, crows seagulls hedgerow birds everyone was up & curious. It must have looked quite sensational. I know Harry Waxman was full of praise and pleased with their take, they were stationed in a fabric hide on the beach which I rode toward. That sequence, as mentioned, I saw on UK children’s TV about 3 decades ago, at that time I thought the scene footage might have been directly copied. I cannot remember the title but it was a carbon copy as that rider too was standing on horseback at a gallop plus being amid flying crows with a banner just the same. A large number of people turned up to watch my ride, which I’m sure was on Kirkcudbright beach at a weekend."
In Hardy and Shaffer’s novelization, there is a dream that takes place the night before May Day, after Willow’s dance. (It can be found on pages 140-143 of the Crown, 1978 hardcover.) It is quite different from what Ian Cutler’s memories of it are, assuming it is the same dream. (I don’t remember any others.) No huge revolving egg-shaped stone nor the woman in the churchyard crushing the egg she held in her hand. The novel version talks about Howie seeing Rowan in an oak tree crying for help, someone named Beech attacking him with a claymore (sword), then Broom, then an army led by Lord Summerisle complete with pipes and in 18th century garb and look. They stop when he recites some lines from Lars Porsena of Clusium by Thomas Babington Macaulay, "By the nine gods he swore…." This holds them for a little while until Lord Summerisle cries out “Wrong, ridiculous, pathetic” and they attack again. Howie wakes up in a sweat soon after this.
The film version would have taken place as the Hand of Glory burned, Ian says. (Confirmed by Justin Hardy.) In the novel the Hand of Glory scene takes place almost verbatim as the movie so Howie doesn’t sleep or dream then.
The Hardy bothers film, The Children of the Wicker Man, has a document where Robin describes the scene as a "nightmare".