This is a hard movie to rate, as it showcases both the best and the worst in Lynch. I've watched it many times, which I wouldn't have done if it weren't quite compelling. But it ultimately has nothing to say, which is a big problem. Lynch excels at staging fascinating scenes that live in their own world, untethered to any narrative, but doesn't seem to think in terms of telling a story. This movie does tell a story, and the story is pretty easy to follow if you pay attention. But huge segments of the movie have nothing at all to do with the story, so you wonder why they're there. But more to the point, there are really two conflicting stories here. The first two hours is one movie, and then the rest is a different story, which destroys everything that had been built up to then. So you're left with a real bad taste in your mouth at the end.
Most of this trouble stems from how the movie was made. The first two hours are the pilot for a TV show that didn't get picked up. Pretty much everything through the theater scene, other than the somewhat gratuitous sex. Being a pilot, its objective was to open up lots of unrelated threads that would then be explored in the eventual series. And if it was anything like Twin Peaks, then Lynch had no idea where any of these threads were going. Then he tried to somehow turn all of those unrelated and unresolved threads into a coherent movie. He did this by coming up with yet another story thread, which does get resolved.
The problem is that this new story has little to do with everything that precedes it, even though it does manage to sort-of tie it to most of the other threads, or at least casually reference them in some way. But he does so with a really cheesy device that's not even very original. (It had been prominently used about twenty years earlier, to almost universal scorn). And really, it doesn't work. The first part just doesn't make sense in the context of the second, even though there are a few details that might be considered ret-con foreshadowing. He would have been better off just giving us the pilot as-is, with no resolution. Or cutting all but the main Betty/Rita story line, which would then have opened up enough time to tell that story.
Having said all that, there's a lot of really good stuff in here. The whole Betty in Hollywood arc is fascinating with its ironic juxtaposition of Betty's over the top naive idealism and the industry corruption. The director at home and with the cowboy was wonderfully surreal. The who-is-Rita Hardy Boys adventures are very engaging. The incompetent hit man is really funny. The Hollywood backstage stuff seemed quite promising. The whole Club Silencio bit was mesmerizing. And there's not-so-good stuff. The dwarf in the isolation room who appears to be controlling Hollywood was just dumb, more of a parody of David Lynch than a serious part of the movie. Similarly the espresso guy.
But really, each time I watch the movie I think how this could have made a great TV series, and it's really too bad that ABC passed on it. And even the Diane/Camilla story could have been interesting if he'd actually made a movie about it. So a big lost opportunity. But still very much worth your time.