And he didn't realise he was living in a dream. All he knew was that he was at Zanarkand, got spat out somewhere else (where he met Rikku) and then got spat out in Besaid. So, people telling him Zanarkand is all ruins makes no sense to him, because he was just there. And I don't believe Auron tells him that Zanarkand is destroyed. So, in his mind, Zanarkand will still be fine (albeit slightly damaged), and he can return there and restart his life.