This is pretty much exactly like my theory of dream creation. It is also pretty much how LaBerge describes it in Exploring the World of Lucid Dreaming.

Lucid dreaming and practicing dream control make this much easier to observe, as you describe. I think most people have an idea that your subconscious already has a setting and plot in mind before the dream ever starts. I think it is more like your subconscious comes up with some random images and settings but your expectations related them is what creates the dream.