I've never heard of Bipolar II progressing into Bipolar I. But usually, if you're hypomanic, you're not sleeping in the first place, so I'd just as soon rule out your BP as the cause.

It actually sounds like you're lingering in Theta sleep, the midway betwen waking consciousness and dreaming. It seems like you don't go deeper than this....but the problem becomes that the "dreams" (I don't like to call them true dreams becasue they're highly suggestable by the waking world, and usually nowhere near what deep sleep dreams are like)....the "dreams" mirror the waking world so much that you don't know when you're actually sleeping during these. It's not something everybody experiences....but then, sleeping is something like fingerprints, different for everybody.

I recommend looking into doing reality checks both during sleep, and during wakefulness. Simply look for things that you know would change in a dream, and observe whether they are dreamlike or waking. A good example of this is written words. In dreams the written word is almost never static. Letters and numbers change and move all the time. So if you see a sign, acknlowledge whether the words are moving or not, and tell yourself, "If the words were moving, I'd be dreaming."