C) Luke Smith

Luke Smith is indeed central to the nightmare, but as the perpetrator, not the victim.

In Karl's nightmare, Luke is the one committing the violence. Karl watches helplessly as Luke appears behind a woman in his second-story bedroom window, drives a knife into her abdomen, disembowels her, and throws her body from the window. Luke then locks eyes with Karl through the window—his eyes described as "voids, pure black, absorbing all light"—and grins before his voice whispers "Bye, Karl."

Luke is the subject of Karl's obsessive investigation—a missing person case that has consumed Karl's life. The nightmare represents Karl's psychological state: he sees Luke not just as a suspect, but as something inhuman, monstrous, inexplicable.