My complaints with them physically being in the sleeping realm is
1. We see Sora asleep at the end of DDD and Riku diving back into a sleeping Sora's dream, where the DDD sora is.
2. To gain entry to the sleeping worlds they had to travel through time. To travel through time they had to give up their physical forms. This mean they had to give up their physical forms to gain entry to the sleeping worlds using Yen Sid's method.
3. They were their younger selves. If they were physically there, this wouldn't make any sense.
I think their bodies were in Yen Sid's tower, just not shown off screen.
But... if they weren't physically there, how could then end up in TWTNW outside of the realm of sleep? In present day, none the less. Or was it just their hearts that were there, given physical shape like Sora from the end of KH1 to the beginning of KH2? And somehow they entered into the realm of sleep 1-2 years in the past and left in present day. I guess time not really effecting the realm of sleep could explain this.
I can follow DDD (and all of KH for that matter) until this. Well this and the constant wardrobe change of Sora during the dream sequences of TwTNW. Still don't understand why his clothes (and age) keep changing. I seriously understand the time travel after replaying it. But I still don't get where Sora and Riku are physically. And I get hung up on that and it really makes me confused with this entire game. Almost as if it doesn't follow it's own rules.
Did they stay young due to hardware restrictions? Idk how that could matter.