Chronologically episode 6.  Kyon almosts gets caught looking at suposedly deleted pictures of Mikuru on the computer.  While he and Mikuru are "fighting", Haruhi walks in and seems to get a little mad at them.  Later that night Haruhi and Kyon wake up in a dream world that looks likes Closed Space but it's not exactly the same.  They are at their school but that is about as far as the space extends.  Itsuki shows up while Haruhi is out exploring but tells him he can't get through all the way and it looks like this may be the end of the world.  Yuki gets through to Kyon on the computer and gives him the hint "Sleeping Beauty".  A monster shows up and starts to destroy the school, Haruhi is excited as this seems to prove that she is right about aliens and such.  As they are running, Kyon tells her that he wants the world back the way it was.  She stops and can't believe he would like the boring world back.  He suddenly realizes what the hints of "Snow White" and "Sleeping Beauty" means and tries to get Haruhi to understand him a different way.