I don't pretend to be an expert, but I am very interested in dreams. As I understand it, dreams are simply our brain's quest to make sense of the process of LTP (during which we are "replaying" recent memories), and also, perhaps, "random" activity, or noise, in other parts of our brains. After all, no part of our brain is every completely silent, it's just that our (undefined) attention mechanism chooses what is and what isn't ignored during conscious states. I think that dreams are simply this mechanism struggling to make sense of activity that, as far as the brain is concerned, is derivative of external stimuli. I suggest looking to attention for a true understanding of dreams.
As far as I can tell, hallucinations are rarely experienced by the average, chemically balanced individual. I think that people use the term hallucination quite loosely, and in most cases they are referring to delusion, meaning that a brief inconsistency in sensory data occurs, and the person deludes themselves into believing that an object was seen, or a voice was heard.
True hallucinations (as opposed to drug induced distortion) seem to be very closely related to dreaming, such as was mentioned: hypnogogic experiences. I have issues with insomnia, and, although it's a horrible habit, I rely on anti-histimines to lull me into synthetic slumber far too often. I notice that these hallucinations are much more prevalent after I've taken a sleep aid. I can almost guarantee that before drifting off I will hear a distinct voice or the laughter of a child or some such thing. If anyone has any knowledge on this, please expand!