As much as I like my version, I think it doesn’t fit in with Higurashi, after all. I’ll still try explain with my theory for fun.
I think witches are free to create kakeras from available smaller kakeras, but they can’t make them real if they’re contradicting reality (like Miyoko not losing her parents). So it’s left adrift.
(In this case there is no particular reason to introduce Hanyuu. She really serves no purpose (except fanservice, of course), as in the end it’s Bernkastel/Rika who is composing final world. In manga Bernkastel even says to Rika “you and I are the only beings able to watch it from the outside”. Although she may be used to cause paradox, therefore allowing for “retrying”)
Maybe because witches can’t affect reality (outside of cases that involve resolving paradoxes about them), they can only create potential worlds out of existing kakeras. But real people writing fiction about Rokkenjima unintentionally created potential worlds that dissolved after some time, therefore producing kakeras (assuming it has to be brought by living people, as with Rika). And almost nobody considered Lion to be alive (keyword is almost). But does it mean then that Erika was popular version?
And the biggest dissonance in my theory is that Bernkastel would have eventually seen whodunnit, but she clearly states
and
(which still bothers me, why Hanyuu couldn’t have told her whodunnit before? Or why Hanyuu is not in the list of observers in the first place?)
New theory:
It’s still happening in some sort of pocket universe, global universe still have to be suspended, but time inside pocket universe can be rewound. Since it’s a game between witches it must uphold certain rules (X - one of the protagonists always go crazy, Y - Tomitake and Takano are always killed on the night of Watanagashi, Z - Sonozaki family bluffs everything). According to those rules “infinite” (according to Frederica) number of worlds were created; creation of a new one is also possible, but it must abide said rules.
But if time is rewound every time it really is a miracle that anybody except Rika can remember the past. Maybe it’s some sort of purgatory and they have to redeem or something?
And the continuations could only be seen after they’ve stopped rewinding time. It’s shown only for players’ convenience. (This should only happen after events of Higurashi). But if those worlds are not stopped, they still can produce paradoxes (here we go again . I guess Ryuukishi did a bad job on this one)
Edit:
With new theory it becomes logical.
“Shine brighter” probably means that while events could be avoided, Rika wouldn’t make any friends (as seen in Hou, if memory serves me right). But in case everything did in fact happen, everybody’s soul mate.