For me,Dream Warriors is my favorite. Just barely above the original. Despite what many say,Freddy was still creepy as hell in part 3. He made a couple one liners,but unlike with the sequels he didn't laugh like an idiot at everything he said. He was still a pretty pissed off dream demon. He didn't mess around much and gave his victims VERY painful deaths. Plus,I also loved how they explored Freddy and his dream world a bit more. The film had some wonderful ideas(the Freddy snake/chest of souls;etc).
Part 3 had the best acting and characters of the series,had great special effects and some of the best deaths. Englund was at his best. You could tell Krueger was starting to enjoy what he did,but he was still very menacing. Clearly,one of the greatest horror sequels ever.