As far as I personally am concerned....'fair use' is a load of bull...and actually WAS such in Australia...before the latest free-trade agreement between big Bush and Banzai Bush.
US Copyright law [under which Wincustomize.com operates] has provisions for 'fair use' which definitely grey what 'could' have been black and white...but the world would be a very sad, empty place...if absolutely NO derivative [fair use] works could be had...also refer to 'fan art'.
These 'things' called Dreams are a new creature which needs some form of referencing to 'fair use' as with other existing media...so...what was arrived at was/is as Zoomba listed in #114.
Now, as to whether Item #3 is so horrid or not, well, surprise surprise...ALL works uploaded here are subject to that one, not just Dreams.....and, if I remember correctly, everybody applauded its adoption in any other gallery.....as that is why we have moderation in the first place.
Like it or not, the biggest 'noise' in Copyright enforcement/argument/litigation/rule-making is the US....and Wincustomize.com/Stardock is US-based and thus must abide by, and exist within the US interpretation of the Act, and, provided we/they adhere to that within #114 then all is well. If that situation changes or is found to need change then the Wincustomize.com management will be well placed to address such.
Please don't compare this with that which is found on Russian sites [your example]. The difference is that if and when an author takes issue with something of his posted here it is dealt with. I personally have chased Russian sites for work removals...and know full-well their response [or lack of]....