In my review of the original A Nightmare On Elm Street (ANOES), I forgot to mention another reason why the Freddy Krueger movies aren't scary to me. I'm not sure about your own experiences, but my dreams are usually very hazy, disjointed, frightening, monochromatic, without any sense of time, and mostly beyond my control, like as if they were scripted events - just like a movie! (See Minority Report's psychic scan sequences, which is the closest cinematic representation of dream sequences I've seen so far, even though they're not exactly representing dreams in the movie.) However, when a person dreams in the Elm Street movies, it's like he or she is entering an alternate, parallel world or dimension that progresses in real time, where people can have a substantial amount of free will, participate in conversations, and even make informed decisions! The advantage of doing this is that it keeps the audiences guessing as to whether the onscreen characters are still in the real or the dream world, making the eventual Krueger attacks more unexpected and surprising. This formula makes the movie more fantastical and sci-fi-ish and less relatable to real-life experiences.
This is where ANOES2 gets interesting, as it veers away from the formula even before the formula became formulaic. After the tragic events in the first movie, a new family moves into the Thompsons house, unaware of said happenings. Inevitably, the ghost of Freddy Krueger haunts the sole teenager in the house, this time a reclusive, geeky boy. Probably because the whole nightmare killing thing didn't work out too well the last time, Krueger tries something new, by possessing the kid's body and embark on his killings in the real world. Strangely, his logic-twisting powers in the dream world also applies in the real one. This is more ridiculous than the "alternate world" concept. Trying something new is a good thing because we don't always want to see the same old thing and Hollywood is currently notorious for being creatively bankrupt, but then again in cases like ANOES2, new doesn't necessarily mean it will work for the better.
Many movie critics pointed out the quite-apparent homosexual vibe in the movie, because A: the protagonist is frequently topless and sweaty, B: there's actually a gay bar scene and one S&M-like sequence in the locker room shower involving two men, C: one jock character even made a sober remark that the protagonist would rather "sleep with him", and D: the director claimed that he deliberately made the movie that way. True, they're there in the movie, but they don't deter the movie the way another vibe, the "B-grade vibe" does. Although very tight on budget, the first ANOES felt like a slick, big studio production, with a talented crew and director who were able to stretch every penny with just a little bit of creativity and elbow grease. ANOES2 had more budget, but perhaps with a different director and crew, the producers were unable to replicate the X-factor of the original movie. ANOES2 feels more like a direct-to-video cheapo a la Leprechaun 4: In Space.
The pinnacle of cinematic achievement
With the shift of focus on the real world, ANOES2 loses the novelty that the first movie possessed. The real world of ANOES2 isn't even an interesting place to begin with, having to follow around a mundane lead character that has no apparent appeal or any matter of interest except that he's being psychologically tormented by a supernatural entity. Therefore, I have to agree with the general consensus out there that this may easily be the weakest and dullest ANOES movie, having not yet seen anything else beyond Part 4 except for New Nightmare and Freddy Vs. Jason.