You didn't miss anything. You're just one of those players who read the dialogues attentively and got the essence of these moments in the game right.
Well I truly thought that since the MC's memories were jumbled, that he mis-remembered his having sex with Cat, and his NTR nightmares correlate with the trauma of his last memories before his life threatening beating. His bully Steven taking Cat and all that. It would make sense that she'd fall back to Steve after she felt abandoned by the MC, but I guess that's wrong.
I played the Arnie's house scene again, and I didn't get the balcony scene my first play-through since my MC was bold and put his hand on what's her face's knee. This time I kept the MC's hands to himself, and got the scene, but there was no kiss on the balcony...is that because of the movie choice made in the flashback? If you don't have sex with Cat in the past, you get a kiss in the future?
I admit, I tend to give stories a bit more depth then sometimes intended. Stories I write have a depth beneath the surface, as what's shown on the surface is rarely the real story IRL. I just didn't like Cat from the opening scene where he wanted to tell her how he felt with a flower when they were kids, but she had eyes only for Steve. Planted a seed that Steve was always going to be between the MC and her, and the NTR dream supported that theory pretty strongly. Maybe he still does, but your post here sort of destroys that part of the mystery. Oh well