Mercury Rev lead singer Jonathan Donahue is perfectly willing to accept that "monsters want souls" and "vampires want blood," as he sings on new single "Nite and Fog." These mythic images, not convent

Mercury Rev lead singer Jonathan Donahue is perfectly willing to accept that "monsters want souls" and "vampires want blood," as he sings on new single "Nite and Fog." These mythic images, not conventional reality, shape the reclusive band's world, explored in all its fantastic lushness on the band's latest V2 offering, "All Is Dream."

"It's not a rejection of reality but an acceptance of an alternate reality that's equally valid," Donahue says of the set, due Sept. 11. "I do what I can to balance my unconscious dream world with this physical, dense matter plane of existence. My dreams [are] as valid as my waking life."

Those dreams inspire an expansively orchestrated, psychedelic pop sound, which has given the group a gold album in the U.K. and at least 49,000 admirers in the U.S. -- the number of people who bought the band's last disc, "Deserter's Songs," according to SoundScan.

After nearly drifting into obscurity after 1995's "See You on the Other Side" (Sony), this Catskill Mountains, N.Y.-based band, once ousted from Lollapalloza for loudness, looked ready to disappear with a whimper. Yet with a new home on V2, and Donahue fully recovered from a post-tour nervous breakdown, Mercury Rev emerged with a quieter, almost mystical sound, giving the label a critical and cult favorite in 1998.

"When I first heard 'Deserter's Songs,' I knew I had been given a gift," says Sharon Lord, V2's head of product management.

Much of the Band-influenced, twilight feel of 'Deserter's Songs' was borne out of relief. The once-volatile relationships among Donahue, guitarist Grasshoper, and bassist/producer/ex-Flaming Lip Dave Fridmann were finally cooling. New drummer Jeff Mercel was also settling in, and Donahue has described Deserter's Songs as the sound of friendship renewed.

"With All Is Dream, it's like our nerve endings were reattached," Donahue says. "There was a greater focus of light that seemed to be flowing through us, like a prism, and reflecting in a much stronger way. The imagination was there, as well as greater inspiration."

The result is a more upbeat, rock-oriented piece, a starlit journey through nightmares and folklore, launching with the symphonic fantasia of "Dark Is Rising" and traversing through the siren-like keyboard of "Lincoln's Eyes" to the soaring guitar of "Queen." Also, Tony Visconti's eloquently arranged classic-rock strings fly through "Chains."

Yet the album's beginnings almost led to disaster. The group had hoped legendary producer/arranger Jack Nitzsche (Neil Young, Rolling Stones) would helm the set. Donahue, a longtime fan, counts Nitzsche's scoring work for "One Flew Over the Cuckoo's Nest," with its haunting bowed saw, as having a direct impact on the band. It wasn't to be. Nitzsche passed away days before recording was to start.

"We've met famous people before, and everyone has a special aura, but Jack's was unearthly," Donahue says. "You had to enter Jack's world. It wasn't a mutual thing. He had so much pure musical imagination that it boggles my mind."

Donahue stresses that what the band recorded is not a tribute to Nitzsche. "Lord knows, I have no idea what he would have done. We only knew to keep going. Songs bang away in my mind. Until I manifest them on vinyl, I don't sleep."

Mercury Rev was recently on the cover of England's New Musical Express (NME) and headlined the second stage of the U.K.'s recent Reading Festival. The band will play Europe until early winter.

Regardless, Donahue won't be abandoning his hermit traits. "It's tough for V2 to figure out what I'm doing up in the Catskills, but when they hear these records, they understand why I'm reclusive. It takes everything out of me to make these things. I couldn't deal with being close to a label or a big city."