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Ghadius is an extension of the King of Sorrow.
Ghadius is described as a being of pure nightmares who was rejected and sealed away long ago by the people of Phantomile. He escaped to seek revenge for his imprisonment by destroying the world. The King of Sorrow's history and motivations are almost exactly the same: revenge on Lunatea for being rejected and banished from that world. Ghadius looks rather strange, too: he looks like nothing more than a mask and a cloak which leads to a starry void. The King of Sorrow was controlling the puppet known as Baguji; Ghadius' cloak could be connected to wherever the Kingdom of Sorrow was sealed. This would also explain why the King summoned Klonoa to Lunatea as part of his revenge, even though Klonoa wasn't from that dimension: he was seeking revenge for his previous defeat at Klonoa's hands when he was masquerading as Ghadius.
Klonoa is the player.
Think about it: toward the end of Door to Phantomile, Huepow talks about how Klonoa isn't from their world and how he needs to be sent back to his own. We never see what Klonoa's real world is. It's because Klonoa is you, the player. The game ends with Klonoa going back to his own world; you then become aware of your own surroundings again as the credits roll. The whole "dream traveler" motif could just be an extension of the player, an avatar of whom is exploring fantasy worlds. When the game is over, Klonoa travels yet again--simply waiting for the player to pick up a new game. Even more evidence is at the end of the credits: in "Door to Phantomville," the name you chose for the save file is on the cover of the book (as if you're the "author"); in LV, the game says "good morning," addressing you by your save file name.
Klonoa is a Time Lord.
It's possible, since at the end of the first game, it's revealed that Klonoa comes from an alternate version of Phantomile.
- And the famous wind ring is his TARDIS.
Klonoa is really a terminally ill child.
At the beginning of both console games, it talks about how, essentially, the game you're about to play is a dream, or a look into Klonoa's imagination. By it being all set within his imagination, Klonoa can do whatever he wants within his Dream World. He invented everything - Huepow, his "Grandfather" (perhaps because his own died sometime before), the Wind Village, all of it. This is because the real Klonoa has a potentially life threatening condition - heart condition, tumors, what have you - his parents know that, eventually, their son is going to die. They try to make life for him as normal as they can, but the one thing he can't do is go outside and play with other children like he wants to. So, he created the fantasy world, to cope with what he can't do. The villain in the first game is just his mental image of his sickness. Like any optimistic child, he defeats Ghadius, and believes he can continue within his "dream". However, he's snatched away from the safety of "Phantomile" by a confirmation of the fact that, yes, he is going to die. Thus, the events of the second game are set up. Depressed by the revelation, he retreats into dreams again, but creates a new place, Lunatea, under the belief that Phantomile is too much of a good place. In Lunatea, the entire journey is him coming to grips with his sadness over the ever-nearing end of his life. In the end, he decides to enjoy the time he has left, and voluntarily leaves Lunatea behind.
The King of Sorrow is the personification of Klonoa's own sorrow from Door to Phantomile.
To take this further, the entirety of Lunatea's Veil is a reflection of other aspects of Klonoa himself.
Klonoa's real world is a Crapsack World
And it's so horrendously awful that the inhabitants, including Klonoa himself, often use hallucinogens to escape it, causing them to imagine that they are in happy, colorful dreamworlds. (Hence, Phantomile.) But it eventually wears off, snapping them out of the dream-state. (Hence, Klonoa getting sucked out of Phantomile instead of simply leaving it
Lunatea's Veil is Klonoa's coping mechanism of getting over being separated Huepow and having his memories toyed with
- Each of the kingdoms represents a part of Klonoa's psyche, and the fact that people from the kingdoms don't mingle are symbolic of Klonoa blocking out certain emotions. Lolo is possibly symbolic of his hope or desire to do his best. But most of all, the King Of Sorrow looks remarkably like Huepow (note the ring of rope around his neck and the teal colours); this could represent the lost friendship that he and Huepow had, and how he saw himself in Huepow as one would with a close friend. The icing on the cake is that The Fifth Kingdom is called Hyuponia and throughout the second to penultimate level, hints of the Windmill Song play amongst the twisted music.
- There are five kingdoms based on emotions: Tranquility, Joy, Discord, Indecision, and Sorrow. There also happens to be five stages of grief: Denial, Bargaining, Anger, Depression, and Acceptance. Because of imbalance, the kingdoms are displaying their respective stage of grief, and are traveled to in the same order as the stages of grief: La-Lakoosha priestesses in denial that the world has gone into chaos and just waiting for the Dream Traveler, Joliant trying to distract itself with endless entertainment in hopes to stay happy for a little while longer, Volk City devolving into senseless war and Leorina making a ring copy out of anger, Mira-Mira citizens getting depressed and asking "why bother with anything anymore?", and lastly The King of Sorrow accepting that he needs Klonoa's help to end his life. And as each bell is rung, that stage of grief is passed. So during the course of one dream, which in gameplay time is little over 4 hours, Klonoa has coped with grief that would take a normal person many years to resolve. That's pretty badass.
- Also note the symbol of the priestesses of La-Lakoosha, and the statues of the Mother Goddess Claire. The green triangle represents Klonoa's Dream Ring - a fabled artifact spoken highly of by several characters in the game - and the wings are symbolic of Klonoa's ears that he uses to fly (sure it's only for 2 seconds, but it still counts). We can also see this symbolism in the statue of the MG Claire: she has wings that mirror the symbolism of those in the priestess' emblem, and the ball of energy she has in her hands is similar to the ring. The statue of Claire The Ancient has a striking resemblance to Lephise - and the fact it hides The Fifth Kingdom is similar to how the Moon Kingdom was hidden in the first game. Klonoa literally has to overcome his sorrow and accept it, in order to continue with his life.
Lunatea's Veil is Huepow's psyche after Klonoa leaves DttP
- Similar to the above, citing most of the same symbolism, but changing target characters; the different kingdoms in LV clearly represent conflicting parts of a healthy psyche, with the final hidden kingdom of Hyuponia being repressed sadness. Also note how Hyupo is phonetically identical to Huepow.
- The overall theme of dream traveling could also suggest that he is very literally traveling throughout the dreams of different people, like some kind of adventure platformer psychologist/therapist. The DttP is quite literally helping a child recover from the trauma of a nightmare before it does long term psychological damage, ala Nahatomb. Once Klonoa's job is done there, the closest person in need is Huepow, who is now grappling with depression.
- Yes, this does suggest that Klonoa's progression through the two main PS games is in fact something like Inception style dream-diving.
Klonoa was killed on the way back to his universe
Hence why there isn't a Klonoa 3. In the ending of Lunatea's Veil, the portal Klonoa walks through was too powerful, and killed him.
The kicker? Shortly after the portal ripples, Klonoa is surrounded by a bright light, and he is walking into it.