Yeah, a director friend of mine doesn't like Mulholland Drive either because he "doesn't like movies [he] can't understand."
It's actually not that difficult, though.
*Spoilers* for people who haven't seen it and desire to.
It's first and foremost an indictment of Hollywood. I originally thought to compare it to The Player, but Altman's film is a satire, whereas MD is just a surreal, condemning portrayal. Ok, so we have Betty, young wide eyed beautiful blonde exceptionally talented actress. Her narrative collides with Rita's, who's a helpless, lost, cumbersome woman that is now attached to Betty. So enter Adam, the director, who serves for Lynch as somewhat of a talented director who's being beaten back by the corporate forces that you never really see, and are just ordered to follow (hence the middlemen, the guy in the wheelchair (an Oz figure), everyone falling over themselves not to displease these guys who start or shut down productions. Enter the cowboy, kind of a caricature of these corporate faceless order-men who has no talent in making films, but Adam still has to do what he says.
Cut to the two guys at the restaurant. They serve just mainly as a function in the narrative to introduce the restaurant and the man behind it (kind of a Dreammaster, you might say). Now cut to the hitman. This guy's a halfassed screw-up, someone who came to Hollywood looking for something more than a silencer and wound up doing what he had to do to survive.
"I just came here from Deep River, Ontario, and now I'm in this... dream place."
- Betty, Naomi Watts
So as these places and characters interweave through the first hour and 50 minutes, Betty, who's a good person, helps Rita as much as she can, even growing to love her. She doesn't meet Adam because she promised to take Rita somewhere. They go to "Rita's" house and see something, a dead body it seems. Rita starts wearing a wig to imitate Betty's natural hair color, who she wants to be, to whom she's most grateful, whom she loves. So post-lesbian sex scene, they go to the Club Silencio. They listen to a woman sing Llorando ("Crying"), are brought to tears, and then watch her fall over, the song keeps playing, never having sung a note.
"Il n'y a pas de orchestra."
"There is no band, and yet we hear a band."
"It's all recorded."
"It's all a tape."
- Club Silencio owner
This scene shows both Betty and Rita losing their innocence. They already loved each other, but now their eyes are open to the real world, i.e., they see Hollywood for what it is as well. Naomi and Laura's acting during this scene is just great.
So Betty pulls open her bag and finds the cube. Then in the bedroom, Betty disappears, and Rita is there, and turns the key into the cube. This is kind of like a pandora's box for dreams: once you open it, the dream ends.
Cut to Naomi Watts getting up in bed. Knock on door. "Diane, where have you been?" She's just woken up from the hour and 50 minutes that we've just watched, watching her dreams. We find out that the real Naomi, Diane, came to LA after winning a jitterbug contest (remember the opening scene, remember her winning, remember the people standing behind her after she won). Her acting was never really good, she didn't have much talent. But she found Camilla, supertalented, who kind of liked her and helped her originally.
In the dream, she morphs Camilla into someone who is clinging to her instead of her clinging to Camilla. She became what she wanted Camilla to be - a good person. Instead of not meeting the hotshot director like she did, Camilla/Laura Elena Herring blew off Diane when she needed her. She tried to drive her away instead of being a good person. Diane morphs herself into someone with all the talent, instead of being a helpless, lost, cumbersome woman that she is in real life. She gives the name "Camilla" in the dream to someone who is being pushed to the top by the Oz-like hazy corporate execs that you never see. She's fine with that, knowing she has real talent, because she's in love with Rita, and that's more important to her. Camilla/Laura Elena Herring never thought this way, like Diane wanted her to. And Camilla becomes "Rita" in the dream probably because Diane came to Hollywood with Rita Hayworth as an idol, one of the biggest women ever in Hollywood, wanting to be that big. Obviously, she couldn't.
You see her masturbating and fantasizing about Camilla, really pounding herself doing it. (Little tidbit, Lynch actually made Naomi masturbate for the shot, and she kept saying '

you, David' as she was doing it.) So then at the party all the characters are shown in real life and you see where Diane got them from in her dream. The shot from Mulholland Drive/Mulholland Dream overlooking LA is a throwback to A Star is Born, the Judy Garland biopic film from '54.
In the end, Naomi blows her brains out after paying for Camilla to be killed. The "little people" as some people call them are her parents, chasing and ridiculing her for never making anything of her life.
So, yeah, I put this together after my 3rd viewing of the flick.