In "Freddy's Dead", Freddy is so engorged on souls, that his strength is at god-like levels. Freddy's making everyone forget about the kids is more likely his attempt at protecting Maggie from having the problem of Carlos, Spencer, and John being gone. He never had to do any such thing before because he never had to protect anyone from the results of his activities.

Yes Freddy gets more powerful with every soul so at some point he wouldn't need a dream master

I would guess screwing with Maggie and Tracy more to make them think they were going nuts.
Create a society in which you would like to live, not knowing what you're going to come into it as.

Also a very good question, yes.
And the flowers are STILL standing!

I'm also wondering what would be the point of erasing the kids from everybody's memories? What did Freddy have to gain from doing this?

I questioned the same thing and a million other things about this movie. I like the movie because it goes into Freddy's past a bit. But for the most part this movie is dumb with all those Looney Tunes sound effects and stuff. Funny thing is that I saw this in the moives as a kid and loved it.

I always wondered how Freddy was able to get into the dreams of ANYONE he chooses in this one without the help of Kristen, Alice, or Jacob to link him.
I just have to assume that by this point he's so powerful he's almost omnipotent. He has such a grasp on merging dreams and reality that eliminating someone in the dream does the same in reality, Doc sorta explains it.
Create a society in which you would like to live, not knowing what you're going to come into it as.