I didn't see it as "ghastly Cooper head". It is at this point that we see him observing the "happy ending" and knowing that it is not real. I SO wanted that superimposed face to go away, and for the happy ending to be real. At least, the child part of me.

Posted by: Steve Moss

What is the signifigance of the ghostly Cooper head in the Sheriff's Station? It's similar to the ghostly Major Briggs head. It appeared when Cooper made contact with Naido, just before she transformed into Diane. 

My sense is that things started to go 'wrong' from this point on. 

I want to believe that is the point "the dream" began and everything after wasn't real