Dream of the sky dream of us

A struggle between unnamed positive beings and Echthroi. Smiles as a weapon in the war, etc. Unnamed protagonist ends up in the middle of this all, at first thinks the world has gone mad, but by the end is trying to help plaster cheery abstract blue sky back onto the ceiling, to fix the cracks that're appearing revealing cold naked emptiness lit only by lonely stars. By the end, it's a losing struggle, but a solution is found to forge a peculiar dual existence between the two. The protagonist slowly undergoes changes and evolutions into a more powerful positive being, but in the end dies after the Echthroi show a sudden unusual burst of creativity and break from their standard repetitive tactics. This death only signals a motion to a higher, stranger level of the struggle...

The dream tragically didn't feature surreal use of rainbows, but that would have fit perfectly in there.