Serapy, I'm assuming that when you mention Dollet City, you are in fact referring to Deling City (capital of Galbadia). Is this flashback the one in the final FMV? If it is, it doesn't prove very much, because it's Squall, alone in time and space, imagining or believing that the worst has happened.
Time Compression can not occur more than once. In time compression, all of time is bundled up into one moment (keeping it simple). If all of time is in one moment, then there is no time (sorry about the choice of word) for anything else to happen, and therefore, for someone to cast time compression.
Okay, here is some evidence that reduces the possibility of this theory holding true.
1) No where in the game is it stated or implied that Griever is fictional. Squall mentions that Griever is the strongest GF. Obviously, Squall himself doesn't have it, or any of your party, because it cannot be junctioned or used. The possibility exists (and would seem quite large) that Griever is a GF that Ultimecia brings under her control.
2) Your next bit of evidence was this.
However, this assumes that Ultimecia does not have access to the memory of the people she possesses. Which the game does not implicitly or explicitly states. In the game, Edea creates the White SeeD ship and sends it off, making sure she never knows where it is. One could believe that this means Ultimecia is able to access the memories of those she possesses.
3) Finally, if Ultimecia did actually create Griever from Squall's mind (i.e. if 1 doesn't hold), then why does she have to have prior knowledge of this being. She is an amazingly powerful sorceress, and therefore should be able to scan everyone's mind, and choose the best imaginary creature. What would the other's imaginary creatures be? Here are my guesses.
Zell: someone's already mentioned it - a giant hot dog.
Irvine: Giselle Bundchen.
Selphie: Something cute and cuddly.
Quistis: a Squall that's in love with her.
Rinoa: Angelo.
I think Griever wins that contest.
In summary, your theory about R=U through the use of Griever is problematic in 3 areas. The first is that Griever could be a GF that actually exists but is only found by Ultimecia. The second is that Ultimecia may be able to access memories. And the third is that Ultimecia may not have to have prior knowledge of Griever to summon him.
I'm not saying your theory is not true, I'd just like these 3 areas to be addressed first.