So was the whole movie a dream?

No. It's that Freddy tricked her into thinking she was awake but she wasn't. He did bring her mom into her dream and killed her. Nancy survived and is in part 3.

In addition to the above answer, keep in mind, Wes Craven wanted to have a definite ending with Freddy being defeated. The odd final scene was forcefully added by the studio who wanted the movie open ended for possible sequels.

I saw Never Sleep Again and it seems that Wes Craven's intent in 1 was for it all or mostly all to have been a dream (meaning no one died). They also based 3 off of Wes Craven's script and by that point Wes was going with everything up until the Mom being burned in her bed as being real. As a horror fan I would on my own interpret everything up until the mom dying as being real and the part where the Dad goes back downstairs as the start of Nancy finally from exhaustion and beginning to dream. The part where the Dad decides to leave the room feels too surreal to be real imo.

In the movie, the characters experience vivid and often horrifying nightmares, with Freddy Krueger as the main antagonist. These nightmares have real-world consequences, as the teenagers are physically harmed or killed in their sleep. The film explores the concept of dreams becoming a tangible and deadly reality.

The ambiguity surrounding dreams and reality is intentional in "A Nightmare on Elm Street," and the story deliberately blurs the boundaries between the two. It keeps the audience guessing and questioning the nature of the events occurring on screen. The film establishes a dreamlike atmosphere and creates a sense of psychological terror, but it doesn't explicitly reveal the events as merely a dream.

The biggest issue is when does she fall asleep? because between the 'I am your boyfriend now' line with the famous tounge coming out of the phone... that implies that we are in a dream

if that was a dream.. then Glen dies next.. how do you explain the parents finding his body and the cops going into the house. is that suppose to be 'reality' that part because Nancy sees all that as well in her 'dream' and the cops outsdie the house. or is the parents finding Glen and the blood the only 'reality' part of the past 20 mins? and the whole 'Dad give me 20 mins' as well part happens in there.

so either she is dreaming the entire time. or she wakes up after the tounge over the phone. then somehow goes back to sleep again. none of it makes logical sense.

what also doesn't make sense is the sequels how can Nany not dream about Freddy for 'years' and survive if Freddy tricked her to being a dream all along if there wasn't some truth to her making him vanish from her dreams.

my take is everything is all happy till the added scene in the daylight, but that still doesn't explain the phone scene with freddys tounge because that implies it is a dream the entire time.

the way I see it Nany took away Freddy's powers for him to hurt her.. but he also tricked her at the end (the forced scene) that it was still a dream as well that he was alive and still around and will go on killing other kids but just not her because she took away his powers to hurt her in dreams. all up until years later when she decides to take hin on in part 3