Right, Steven...not Jonathan.I kind of like your theory here. It fits with some of the themes we've seen so far and hints that Dev has dropped. Just want to correct a few details. Jonathan was not the school bully; he's MC's adopted father. I believe the school bully's name was Steven. They guy that MC arm-wrestled is also not the school bully. His name was Niki. In short, there plausibly could be a link between MC's earlier nightmare and this possibly faulty memory, but the details of who might have been involved still needs more information.
I didn't read that scene is indicating a romantic or sexual relationship between Catherine and MC's friend, Arnie (?). I saw that as the two friends ran into each other, and knowing MC was going to be visiting, Arnie invited Catherine over to reconnect the two of them.
And he told the MC that she's his girlfriend. They didn't seem like a couple in love, but he did call her his girlfriend while she was there, and she didn't try denying it.