I dont know anything about neurosience But if dreaming is related enouth to visual perception, maybe a dream recorder might be somewhat possible

Reconstruction of inner experience - imagery, maybe dreams & hallucinations, perceptual phenomena.

Here is a recent study reconstructing the inner perception of optical illusions: https://www.science.org/doi/abs/10.1126/sciadv.adj3906

Methods like MVPA (decoding among finite sets of cognitive state classes) are actually widely used for insight in cognitive neuroscience.

Ethical concerns are discussed within the field; most papers had explicit ethics sections and discussions long before AI conferences required them for all submissions. In practice these experiments require a participant lying motionless (≈1-2 mm range) in an MRI scanner with controlled gaze and attention for many hours, and even then zero-shot reconstruction is not really possible; the SNR requires many repetitions.

Dystopian applications are extremely impractical or impossible, this is a tool for neuroscience

Not since Americans imported the Nazis - Von Braun et al.