Here is mine (obviously full of spoilers about the game):
I think that all anachronisms like cereal boxes, Grog machines, etc are there just for fun as well as the fourth wall breaking stuff like "pirates talked like that" and the Lucasarts phone in the jungle. An amusement park is perfectly normal in a world like this.
My theory is that Big Whoop is a portal. Maybe it travels to different times. Maybe Guybrush went back in time to when he was in his childhood and his parents were alive. That's why his parents wear pirate clothes. Big Whoop is like a time machine.
Maybe LeChuck is really his older brother which went bad when Guybrush was just a baby and left just to become a pirate. His parents never told the truth to Guybrush.
Le Chuck's plan in to go back using the Big Whoop and kill Guybrush while he is a child. After that maybe prevent himself from dying?
Just my theory. I don't believe that "all is a dream" rubbish. It would simply suck in something as brilliant as Monkey Island.
Guybrush and Lechuck are brothers. Le Chuck cast a spell on Guybrush to confuse him. Big Whoop creates a portal to another time when Guybrush was a kid.