I wouldnt call it a side title,its just as important as any other "main" game. Its not a flashback,i can put money on it,because that would be the stupidest thing to show alongside the rest of the DDD clips. It is in fact Braig and MX/Terranort but in present time. Braigh still looks the same because when someone loses their heart and becomes a Nobody their age locks and they dont get any older,also look very closely and i think Braig might have a slight change in outift.
I never said it wasn't important - nonetheless, it's still a side-title. The Nobodies coming back would be reserved completely for KH3. I doubt it's anything but a flashback. Or, maybe, since Sora and Riku are in the Dream world, they can access the dreams of those already gone, like Braig and Xehanort: in this way, it'd be a dream from Braig or Xehanort but not necessarily a flashback.
It makes sense as a memory, because Xehanort the apprentice didn't remember who he was during KH2 and Braig would have known that, especially if he asked if he had his memories back. Braig and Xehanort look the same as when they were in BBS because it is indeed a flashback. I, personally, think it would be stupid to bring back the Nobodies in a side-title, regardless of how important the game is to the story.
Also, Xehanort could appear dizzy because he just woke up in the body of someone else, having transferred his heart from his old, decrepit body, into the body of young, healthy Terra. I would assume that would be kind of disorienting, at least to me. And just because he summoned MX's blade doesn't mean that he remembers doing it, especially if it was just in the first few hours after he woke up from assumed his new body. Although, I agree, attacking Braig could have something to do with Terra still being inside the body. But, then again, that also points it to being a flashback, for why would Xehanort not have attacked Braig within the first few hours of awakening if Terra was still in the body, all those years ago? Why do that now, and not then?