Why I think he dreamt it all...
I watched this film a while ago, and I was only inspired to go back to watch it again after stumbling across the message boards here. They reminded me how deep and complex this film actually is.
I noticed that the body, when the main guy returns to the park at night, is laid out clean, flat, no blood, looking totally at peace. I know that violence in films from the same era as Blow Up tended not to be as graphic as those today, but you'd think at least that the body would in some way look like it had been shot.
Instead, it looks more like it has been arranged at a funeral. Now, this is where my argument becomes stretched a bit, and falls onto hypothetical reasoning.
I am assuming that Thomas has never seen a murder before, and has never experienced having to see a corpse murdered in a violent way, hence why he is so shocked when he discovers it in his photographs. The most experience he would have had, you might assume, with dead bodies is at funerals, where bodies are laid out calm and nice. Therefore, he is applying thoughts at the back of his mind (what he knows about dead bodies) onto the old man he saw in the park. He is basically assuming what the body might look like (possibly).
I also thought it was interesting how there was a slow panning shot in the scene where Thomas stumbled in on Jane having sex. It looked like it might to moving to reveal something on the floor, but instead just shows the carpet pattern. I would say this is because the carpet, with it's random and jerky pattern, looks like the grainy pictures that Thomas is obsessed with. Because of his boredom he is looking deep into the pictures, and the camera has taken his point of view as he stares into the similar looking carpet. This would tie in with the idea of him being bored of the sex,drugs and rock'n'roll life around him, as he ignores the couple having sex in front of him. They barely register as he looks for something that will actually excite him.
Please let me know what you think, I would love it if someone could expand on these theories