I have read so much gibberish about this movie, most of it along the lines of "it's a dream, it doesn't have to make sense," followed by some sort of deprecation of those who don't "get it." This is nothing more than pandering to the pretentious. The picture's an incoherent mess; it borrows heavily from Lynch's earlier work, like Twin Peaks and Lost Highway (why on Earth would he borrow from that?) and even Blue Velvet, but itself has no pretense, and no art.
In the 70s, David Lynch made a no-budget fever dream of a movie called Eraserhead. It's a disturbing, difficult picture to watch, but it has a sense of artistic purpose. By the end (or sooner) you may hate it, but there's no denying it's a brilliant realization of an artist's vision. It has a logic to it. With Mulholland Drive, there's nothing to move you, nothing at work. Much has been made of the movie's "atmosphere," but it's all recycled atmosphere: stale air.
Atmosphere will only get you so far, at any rate. Does a movie have to have narrative? Certainly not. Characters? One would hope so. In a movie like this, you need at least one strong character, or the atmosphere has nothing to envelop. What Lynch does here is tease the viewer with the Betty and Rita characters, and then halfway through he throws them away, literally.
It's interesting to note that there are some scenes that are stunningly effective and more or less stand on their own. The audition, where Betty, the aspiring actress, plays a scene with Chad Everett, is one. It's startling to watch, because you've seen Betty rehearse the same scene with Rita reading the Everett part, and the transformation you see in Betty makes her alive in a way that you could not have anticipated based on what you know of this girl at this point in the movie. It's a real shame that Lynch couldn't or wouldn't follow through on the promise of that scene.