Well, my interpretations were all well and good, but I was interested in what was going through the mind of David Lynch and Barry Gifford when they wrote the movie. I did a little research, and this is what I found...
Night People
The idea for this movie came to David Lynch while reading a book by Barry Gifford called Night People. In the book, Barry uses the term "lost highway" and those words sparked an idea in David's head. From this early point, David knew he wanted to make a movie about the unknown. He contacted Barry, and they set out to write the movie.
Murder
If any of you are wondering if Fred actually killed Renee, the answer is yes. Fred lived in constant fear of loosing Renee, constant fear that she was cheating on him, and most importantly, constant fear of her past. He loved Renee, but at the same time hated her. Whenever he saw her, he saw her past. Sex with Renee was a torturous reminder of her experience in porn, making it impossible for him to even finish. Eventually, he just snapped. If you watch the movie again, pause it at the point where he watches the final video tape, and jog slowly over the portion where we see Renee's body. You will see what kind of anger and rage exploded inside Fred when he killed her. Her torso is ripped apart, her upper and lower body are completely separated and her hand is cut off and lying on the bed. Continue to jog slowly and you will see Fred stare directly into the camera with a piercing, maniacal gaze.
Psychogenic Fugue
Psychogenic fugue is an existing mental condition in which the subject, wanting to escape reality, creates a new reality inside their head. The person will create new friends, a new job, a new home, everything. Pretty much the entire movie takes place within Fred's head. When the movie opens, Fred has already killed Renee and he starts creating an alternate reality. He infuses his own reality with tiny portions of the truth, so some of what we see is actually based on fact, but the majority is what Fred is creating inside his own head. A very important line in the movie is when Fred and Renee are explaining to the police why they don't own a video camera. Fred says he doesn't like them, that he "would rather remember things his way, not necessarily the way they happened"
When Fred is imprisoned, his mental illness kicks into high gear. He is on death row, and any hope of escaping his nightmare (his real life) is lost. He is stuck in this cell until his death. His only way out is to completely escape to a new reality. This is when he essentially snaps and in his own mind, he takes on a new identity, Pete. The rest of the movie is him trying to live a life he finds more attractive. He is a young, good-looking guy, who has no trouble getting any woman he wants. Then he meets Alice (a now blonde Patricia Arquette), his alternate version of Renee.
But, Fred is so sick, that even in the reality that he is creating, Alice becomes a product of his paranoia, eventually turning on him, declaring "you will never have me" while they are having sex and then getting up and walking away. This is the point in the movie, in the desert, when Fred decides to abandon this alternate reality and he reappears and Pete disappears.
The last scene of the movie is Fred being chased by the police down the highway as he begins to transform again, just like in the prison cell. This reality didn't quite work out the way he wanted it to, and now he is out there somewhere, living a new life again. Let's hope this one worked out for him! 
Robert Blake
The mystery man is truly the most fascinating aspect of this movie. In my opinion, he is Fred's idea of the devil. He has supernatural powers and he feeds off the sins of mortals. The scene at the party is one of the creepiest movie scenes I've seen, yet at the same time it is hilarious. The way the music and party noise fade when the mystery man and Fred walk up to each other created a bizarre and surreal exchange. Another great scene of the movie is when Mr. Eddy and the mystery man call Pete together. "Yeah Pete, I just wanted to jump back on and let you know I'm glad your ok!" Click. That was great. And of course, I can't talk about the great scenes in the movie without mentioning the "tailgating" scene. Robert Loggia (Mr. Eddy) is a master.
Conclusion
Keeping in mind David's use of psychogenic fugue as the main characters mental illness, the movie is actually very simple. Watching the movie again, keeping this all in mind, is an entirely new experience. The first several times I watched it I was intrigued by the puzzle. Now, watching the movie, I can relax, stop trying to figure out how everything relates to everything else, and watch what is actually happening. I suggest, if you are a fan of the movie and haven't seen it in a while, or if you learned some new things here, then go back and watch it again. You will realize more than ever that David Lynch is brilliant, a master of the avant-garde.If you are able to play Region 2 PAL discs (as I am), the German edition of Lost Highway on DVD is the way to go. The English soundtrack is included in Dolby 5.1, and (unlike the Canadian edition) it's in W-I-D-E-S-C-R-E-E-N. Another review of this disc convinced me to purchase a copy from Amazon.de. Surpisingly, Amazon.de recognized my Amazon.com login! And placing the order was pretty easy, even though my German is almost non-existant.
The picture and sound quality are good (though not exquisite), and the disc even has some extras which, on Lynch DVDs, are usually scarce. The sound track does appear to be slightly out of sync with the picture, but that could be an artifact of converting PAL to NTSC on the fly. What I wouldn't give for a multi-standard widescreen monitor...
The film itself is a dark psychological study similar in many ways to David Lynch's more recent Mulholland Drive. It's about obsession, murder, guilt, secret identities, and the demons that often drive people to desparate, destructive acts. Don't try to make sense of it the first time through; just go with it. Then, on repeat viewings, look at it as a symbolic map of a man's mind stressed beyond the breaking point. Apply a little Jungian psychology, and its meaning should, if not exactly come clear, at least brush past you close enough to touch.
Lost Highway is an underrated masterpiece of psychological horror, and not to be missed by fans of David Lynch! C'mon, you can get through the German...
Read Best Reviews of Lost Highway Here
I had been waiting so long for this movie probably my favourite David Lynch to come out on DVD that I grabbed the Canadian import the moment I saw it... unfortunately it is by far the worst quality commercial DVD I have ever seen.The format is pan-and-scan (i.e. 4:3 ratio) only and the image quality is appalling. The sound (Dolby, supposedly) is little better. It is basically unwatchable. Another user review says that the DVD is somewhat better than VHS I would say the image quality is on par with VHS, and certainly not worth the four stars that reviewer gave it; I cannot imagine how any DVD could be worse than this one.
I am sure that David Lynch had nothing to do with this hastily cobbled together sham. He fine tunes his DVDs (even to the extent of removing chapters from "The Straight Story") and I am sure he would be furious to see his movie butchered in this way.
This DVD is of the quality I would expect if I bought the damn thing from a street vendor in Shanghai; ...I bought this DVD without noticing it wasn't widescreen because the store sticker was on top of the info. I was pretty mad when I got home and realized this. Then I sat down to watch it. I got hysterical. This is the worst DVD I have ever seen!!!! The compression looks like a bad internet stream, there's a faint white line that flashes randomly across the picture (like a ghost image), the sound is ordinary at best. I don't know who did this hack job but I certainly intend to find out and complain. I'm sure a high school kid with an iMac would've done a better job at compressing this movie. It honestly looks like a copy of a copy of a pirated copy!
David Lynch is one of my favorite directors and I just can't believe he approved this. If you need a Lynch fix, get Blue Velvet and wait for a "real" version of Lost Highway. This edition is absolute trash.
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