Rock-a-Doodle/WMG

Don Bluth was on crack.
Seriously.
 * Seconded. What happened after he went into rehab? Anastasia and Titan AE! Bluth works better with Artistic Stimulation.
 * In the second stage of addiction, he made The Pebble and The Penguin.

The Duke faked the Sunrise with his organ.
Even if he doesn't use it much, it still may have a "sunny setting".

Edmund is a Reality Warper.
His belief in the story of Chanticleer makes it real, and his fear of the Duke allows him to manifest in the Real World.

The Duke has his own reality warping abilities, senses Edmund's power, and attempts to neutralize it by transforming him into a helpless kitten. Edmund, however, continues to subconsciously flex his influence over the storybook world.

The Duke becomes an increasingly Large Ham with a Weaksauce Weakness to light and an affinity for Villain Songs (Narmish lyrics provided by Edmund).

Chanticleer becomes an Affectionate Parody of Elvis because Edmund's heard his songs, and he strikes it big in the city because that's what Edmund came up with to explain why he hadn't come back to the farm.

Goldie falls in love with Chanticleer despite her earlier anger and jealousy because Edmund thinks they're in love.

Peepers died in the crash; the nightmare sequence immediately following is Edmund rejecting that reality and substituting his own.

Ultimately, the Duke decides to kill him and end the threat that way; unfortunately, he acted after Edmund had invoked The Power of Friendship, allowing Patou and the others to pick up where he left off and then bring him back.

Now, the question remains: did Edmund jump over into the storybook world at the end, or did he flex his powers and transform the real farm into the storybook one...?

Edmond died when the tree crashed into his room.
The rest of the movie is the bizarre afterlife he created for himself.
 * That, or it's what goes through his comatose brain as he's dying. When the credits roll, he's finally dead, explaining the outlandish and nonsensical ending that cuts off abruptly.
 * So his Disney Death near the end where all his friends are gathered around him hoping that he'll wake up could be his brain vaguely registering his Real Life family doing the same thing at that moment when they discover his body...damn.
 * It's just his Dying Dream. When the duke strangles him, he actually slips from coma to near-dead. When Edmond "wakes up", he comes out of the coma to spend his last few minutes with his mom. His life finally slips away when holding the book, and his Dying Dream continues. Fridge Horror, anyone?

The Grand Duke is Voldemort's owl.
This might explain how he has magic powers.
 * Voldemort gave his owl the power to vomit glitter? Wow. He's suddenly about ten times less scary.
 * It was a beam that would make them sparkle, thus making them less cool and constantly made fun of. Voldemort, essentially, gave his owl the ability to turn them into Twilight characters. A Fate Worse Than Death.
 * Or, more logically, whilst on a rampage of terror, the Grand Duke eats one of the sparkling vampires, or Lucky the Lucky Charms leprechaun. Whilst drinking that glittery blood, it goes down the wrong way, and part of it gets lodged in his lungs or somewhere on the way up to his throat. Ever since then: glitter.

The reason the sun didn't rise...

 * The Duke planned this somehow. He found a way to cancel out Chanticleer's power, which is why he didn't use it until the climax.
 * It was all a coincidence, and Chant's crow bringing back the sun at the climax was just another coincidence. It couldn't actually rain forever - it had to stop sometime.
 * There would have been aperfectly logical explanation and story, had the stupid little kid not interferred.
 * The way I always justified the Sun not rising is because it was mad at the farm animals for taunting and teasing Chanticleer to the point where he left and it decided to punish them by refusing to come out and taking a long nap until Chant came back and hearing his crowing would alert the sun that he was back and that the farm animals had apologized to him. Hey it's the only reason I can think of why it would come up and then set again and not rise again, I mean I guess when it rose without the crowing it saw the taunting and teasing and decided to punish the animals like that.
 * Chanticleer's crowing was the sun's alarm clock. Once, the sun woke up early, and decided to go back to sleep. She kept sleeping, until the Power of Rock woke her up.

The Grand Duke made the movie nonsensicle and a flop.
After battling the heroic Chanticleer, he decided to take the guy down with him. In spite, he went to Don Bluth and gave him the script, utterly changing everything in order to mess up the heroes and ruin Chant's showbiz career.

The movie wasn't a dream...
When the Duke turns Edmond into a kitten and breathes all over his room, making it into a fully animated backdrop, he's actually transporting Edmond into another dimension where The Duke and Chanticleer live. This explains why the city is actually populated by furries instead of humans. At the end where Edmond is turned back into a human and wakes up in his own world (The part where we believe it was all just a dream), Hunch kills the Duke off screen, making all of his magic wear off and transports Edmond back into the real world. Chanticleer could've had some magic of his own, which allowed Edmond to visit the farm animals for one last time during the last musical number at the end.

It really is a good movie ...
It's just so ahead of its time that most people won't appreciate it until 20+ years from now.