Season 7 has two episodes which feature Data and the use of surreal imagery: this episode and Masks. This episode works in every way, whereas Masks is confusing and lacks resolution.
The surreal imagery is at times humorous, at other times creepy, and the episode flows seamlessly between the conflicting emotions. For example, the "cellular peptide cake" comprised of Counselor Troi's body is at first humorous ("with mint frosting,") but becomes disturbing as she shrieks in pain and as Data later stabs her in a "waking dream" state. The inter-phasic alien creatures are particularly disturbing, both as parasites and as an existential threat to the crew of the Enterprise.
What makes this episode so much better than the other surreal season 7 Data episode ("Masks") is that the threat makes sense once it is discovered, the imagery makes sense once the meaning is determined, and the resolution tidies everything up nicely. "Masks," on the other hand, is completely unsatisfactory on every level, other than it showcases Brent Spiner's acting capability. Sadly, lacking any real emotional connection, "Masks" fails even on that level.