Zoee does the "chasing rabbits" thing sometimes. But my brothers RB doggie, Digger, did it ALL the time. He would be in the other room and it would wake me up in the middle of the night. Partly from the wimpering (barking in his sleep) and bumping the wall of the closet (he preferred to sleep in my nieces closet) when he was trying to get that wascally wabbit.
I absolutely think dogs (and cats) dream.