John wrote:
>...the phenomenal world is based on consciousness,
> as Patanjali has discussed in his yoga sutras.
>
According to Patanjali, (circa 200 B.C.) the phenomenal 
world is based on three constituents, three gunas born 
of nature, which make up the field relative field of 
prakriti. Totally separate from this is the Purusha, 
the Absolute field. According to Patanjali, the process 
of Yoga isolates the Purusha from the prakriti, using 
the Eightfold Path.

The notion that conciousness is the basis of reality came 
much later with the 'Conciousness Only' school of the 
Vijnanavadins such as Vasabandhu, Asanga, and Shankara 
the Adwaitin and his teacher Guadapadacharya, the first 
systematic commnentator on Vedanta.

According to Shankara, the phenomenal world is based on 
Maya, a category which causes us to see the phenomnal 
world as real, when in fact, it is covered by ignorance 
- we do not see the real, but only a representation of 
the real, which is not unreal, because it is presented 
to us, yet neither is it real in the absolute sense.

> Although not mentioned in his sutras, I believe 
> some of his experiences of the siddhis pertain 
> exclusively to the dream consciousness.
>
The notion of the dream conciousness, John, did not 
occur in Indian philosophy until the time of Gaudapada 
who composed the Mandukhya Karika on Mandukya Upanishad. 
Shankara commented on Mandukya and took this notion to 
a higher level by introducing the idea of Maya.

> Specifically, through the use of the basic TM 
> technique, I have personally experienced the 
> siddhis of being as small as an atom, being 
< as tall as a mountain and flying in the air. 
> I have even seen the ethereal kundalini in 
> the base chakra. All of these I have seen
> in my dream experiences, either soon after 
> meditation or during the sleeping hours.
>
Maybe so, but what you see in the dream state is 
similar to what you see in the waking state. All 
experiences of phenomena are conditioned by the 
senses, whither you are awake or asleep. For example, 
you might see a theif in the night, but at dawn you 
realize what you saw was a fence post. The senses 
are not able to percieve the real because of ignorance, 
like a viel, which covers over our perceptions.

> MMY, however, is taking the sutras to another 
> level by showing that the flying siddhi can be 
> experienced during the waking consciousness.
>
> Ultimately, Patanjali (as well as MMY) is trying 
> to say that the so called reality or phenomenal 
> existence is really like the dream experience.
>
Although MMY wants to be in the tradition of Shankara 
and Adwaita, MMY does not emphasize the idea of Maya 
very much. Being of the Yogic tradition, MMY is more 
likley to support the dualistic notion of the 
separateness of prakriti and Purusha, and the idea of 
the gunas born of nature, as well as the Sankhya idea 
of the thirty-two evolutes or tatvas.

> In this scenario, it is highly likely that whatever
> we desire in the waking consciousness will come 
> true as they magically manifest in our dreams.
>
Patanjali agrees with Shakya the Muni that desire is 
an impediment to realization. In order to know the 
Absolute we must avoid striving. Desire and goal-driven 
activities are counter-productive on the Eightfold Path. 
In the Bhagavad Gita you will read that we have a right 
to take actions, but we do not have the right to the 
fruits of our actions. Actions, is all cases, are the 
result of the play of the gunas. Karma is the driving 
force which propels us to act due to past actions - but 
we are not really the author of our actions, they are
determined by the forces of nature. 

> Which brings us to the final question: what is 
> reality?
>
According to Shankara, the real is Brahman, which created 
the manifest nature, and infused it with the contituents 
of motion called gunas. Everything else is Maya, like a 
dream, in which we see relative phenonena and mistake it 
for the real. Just like we see a snake on the ground at 
night, but when day breaks we realize that the snake is 
but a coiled up piece of rope. We often do this because 
the senses are not able to actually percieve the real 
directly. Brahman however, is not an object of cognition. 
We need a special sense to realize Brahman - that special 
sense is conciousness.

Guadapada on Mandukya Upanishad:

17. Just as in the dark a rope whose nature has not been 
fully ascertained is imagined to be various different 
things such as a snake, a line of water and so forth; in 
exactly the same way the Self is imagined in various 
different ways.

http://www.advaita-vedanta.org/avhp/gaudapada.html

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