I'm all for character development. I don't get why people feel the need for plot to be developed all the time. A plot means nothing when we know shit about the characters.
And this show is essentially about what goes on in House's head. What he thinks, feels, etc. impacts the direction the plot will take. And I'm in your camp, you already know this, but yes in no way does the hallucination negates anything that has happened thus far in their relationship or even means the end of House/Cuddy.
AND YES YES YES LISA CUDDY IS THE ONE AND HOUSE KNOWS IT! I think this episode also makes it so clear that a part of what he does, the good that be puts out into the world has in some way a correlation to how he wants to be deserving of her. That a lot of the reasons why he never tried anything with her in the past is because he knows he does not deserve way. And maybe I'm perverse but that's a great amount of love right there, isn't it? And yes FOR FRAK'S SAKE HE FUCKING ASKED HER TO MOVE WITH HIM! It was kinda heartbreaking to see Cuddy laughing in disbelief but he actually thought that she was happy, me thinks, and that's why he was smiling to himself.
And yes people need to appreciate that the show IS coming back. BSG's never coming back again and though I don't watch House I only understand too well that feeling when you know your show is not coming back. Kinda like Studio 60 as well :'(