Dreaming as a threat to knowledge

Dreams and dreaming have been topics of philosophical inquiry since antiquity. Historically, the topic of dreaming has mostly been discussed in the context of external world skepticism. As famously suggested by Descartes, dreams pose a threat towards knowledge because it seems impossible to rule out, at any given moment, that one is now dreaming. 

 Should dreams be described as hallucinations or illusions occurring in sleep, or should they rather be described as imaginative experiences? Do dreams involve real beliefs? And what is the relationship between dreaming and self-consciousness?

(Newman 2010 the Always Dreaming Doubt).
There are different ways of construing the dream argument. A particularly drastic claim would be that Descartes might conceivably be trapped in a lifelong dream in the sense that none of his experiences, including his waking experiences, have ever been caused by external objects 

This doubt 'i am dreaming' is epistemologically damaging: even though some of  one' sensory-based beliefs might be true, the possibility that she might now be dreaming renders her unable to distinguish his true beliefs from those that are false.

If we apply this to the case of dreaming, we get:

1. If I know that I am sitting dressed by the fire, then there are no genuine grounds for doubting that I am really sitting dressed by the fire.
2. If I were now dreaming, this would be a genuine ground for doubting that I am sitting dressed by the fire: in dreams, I have often had the realistic experience of sitting dressed by the fire when I have actually been lying undressed in bed!
3. Therefore, I do not know that I am now sitting dressed by the fire.