Dreamtalia, originally an unplayable RPG, was created by Kyokoon64 and Pianodream.
Dreamtalia currently is available to play. It is also awaiting a sequel, which you can find a teaser for in the bonus room at the end of the game.
Apparently, the game was based off a Gerita RP. The creators have said to be surprised by the game's popularity amongst fans (then again, the creators are practically Hetalian celebrities).
The time is presumably World War 2. Everything is continuing as usual, until Italy mysteriously falls asleep and doesn't wake up. Several others also fall asleep.
This forces Germany to confront England, as he believes he may be behind it. However, the Allies reveal that people they're allied with are also falling into sudden comas.
England later identifies the culprits as mysterious creatures (that are supposed to be extinct) called "Fauchereve". He explains they have to go after the sleeping nations in their dreams, or else they would die.
On October 22, 2014, during one of her many Let's Plays,Dreamtalia creator (Kyokoon64) discovered original music for Dreamtalia within Imaginary Nightmare. The music was borrowed without permission, and as such, Kyokoon64 confronted KingDespair about the problem. Shortly thereafter, all traces of KingDespair were removed from Deviantart (where Imaginary Nightmare was hosted) as well as links to the game itself.
Co-mod of Dreamtalia (Pianodream) made a public note about infringement on zir deviantart page which stated "It has been recently brought to Kyo and I's attention, to our utmost displeasure, that a certain person on deviantArt created a Hetalia fangame of their own and shamelessly used original tracks from Dreamtalia (notably the Toy Factory's theme) in it." Pianodream also refused to name who the "certain person" was for "protection" (which was a moot point as anyone who'd watched the LP would've known).