Okay, I'm with Tino a bit here in it being more reality than people are saying.
But my primary feeling coming out of the film was this...
At the cinema much is made of THERE IS NO BAND. It's a lip synch theater. So what, so this. When we watch a movie there is a point of view, there is a narrative line following 1 or more characters.
What if in this film, THERE ISN'T??
Without that anchor, the film is free to wander a bit. I see that moment at the cinema as being directed at the film audiance more than the characters in the film. It is all illusion, we see characters interacting, yet there are none. We hear the band, yet there is no band.
I'm out on a limb with that I guess, but try to think of it from Lynch's standpoint rather than ours. Why would Lynch want us to see and hear what we do? After all he is speaking to us, not just telling some story. Some directors do focus less on the audience, but I've never found that to be Lynch's style.
In my review I questioned if he is just trying to be intentionally difficult, but I'm not sold on that by any means. A bigger part of me suspects that he has stumbled onto something of genius.
A narrative film without characters, without a point of view, yet still with a narrative. We see them, but they are not there, in terms of being primary characters, heros and protaganists, etc.
Back to the reality, I do believe in the murder because of there being several scenes to support it. The HITMEN are talking about how RITA GOT AWAY. The guy who gets killed was in charge of it all and is telling the other the anecdote about how the car crash spoiled it.
What he doesn't know is that his old friend was the guy in charge of it all initially and probably got it farmed out to him via the shady connections. That's why he shows up and cleans house. He takes the contacts back so no one can trace the murder back to them/him. Both he and his buddy are mostly secretive about each other's work/contacts.
Also, I agree with the phone call to "Diane's" by the "mafia". I also wonder if she had some involvement with Camilla getting the part since it appeared that the same people were involved.
Another thing, the director was not single, he was divorced. He got the pool and she got the pool boy, remember. So the moments early on when he is forced to hire Camilla appear to be well before the party later when he announces his new marriage to Camilla.
It seems like some of it could be rearranged to flow into a more sensible narrative, primarily all the "side" stories.
At the very least, Lynch has given us a film to discuss endlessly.
