Seeing the Prophet (peace be upon him) in a dream is a blessing from Allah because it is a true dream. Abu Huraira (may Allah be pleased with him) narrates: The Prophet (peace be upon him) said: "Whoever has seen me in a dream, has in fact seen me, for Satan does not appear in my form" (Sahih Muslim, vol. 4 p 1225 no 5635)
Seeing the Prophet (peace be upon him) in a dream is a blessing from Allah because it is a true dream.
There is no doubt that this hadith is authentic and reliable, and thus cannot be denied or distrusted; but there are, however, some points which should be noted concerning its meaning:
(a) The hadith indicates that Satan can enter the dreams of human beings in various forms and invite them to misguidance.
(b) The hadith states that Satan cannot take the actual form or appearance of the Prophet (peace be upon him)
(c) The hadith also confirms the fact that the Prophets (peace be upon him) form may be seen in dreams
Since the Prophet (peace be upon him) made this statement about dreams to his companions, who were familiar with his appearance, it means that if one who knows EXACTLY WHAT THE PROPHET (peace be upon him) LOOKS LIKE, sees something fitting that description in a dream, he can be sure that Allah has blessed him with a vision of the Prophet (peace be upon him) [Imaam an Nawawee quotes al-Qaadee expressing this opinion. See Sahih Muslim Sharh an Nawawee vol. 8 p30].
After quoting the hadith on seeing the Prophet (peace be upon him) in a dream, Ibn Seereen was reported in Sahih al Bukhari as saying:
"Only if he sees the Prophet (pbuh) in his actual form" [Bukhari vol.. 9 p104 no 122, Abu Dawood vol. 3 p 1396]
It was also reported that when someone told Ibn Seereen that he saw the Prophet (peace be upon him) in a dream, he would ask the person to describe whom he saw. If the person mentioned characteristics known to Ibn Seereen, he would tell him that he had not seen the Prophet (peace be upon him). [Fath al Baaree vol. 12 p400].
Kulayb also reported that once he told Ibn Abbas that he had seen the Prophet (peace be upon him) in a dream and Ibn Abbas asked him to describe whom he saw. When he mentioned that the figure looked like al Hasan ibn Alee, Ibn Abbas told him that he had in fact seen the Prophet (peace be upon him) [Fath al Baaree vol. 12 p400]
One of the Quranic transcribers, Yazeed al Faarisee, related that he saw the Messenger of Allah (peace be upon him) in a dream during the era of Ibn Abbas and informed him. Ibn Abbas said, "Allahs Messenger (peace be upon him) used to say, 'Satan is unable to imitate my form, so whoever dreamt that they saw me, actually saw me'. Can you describe the person that you saw?" Yazeed replied,
"Yes. I saw a man of medium height, of light brown hair, with a nice laugh, black eyes, a nicely rounded face. His beard filled from here to here (from one cheek to another) and almost filled his neck" [at this point the haidth narrator, Awf, interjected that he could not remember the other characteristics Yazeed mentioned].
Ibn Abbas said, "If you saw him while you were awake you wouldn't have been able to describe him better!" [al-Fath ar-Rabbaanee bol 17, p 225, nt1]
Allah has denied Satan the ability of taking the actual form of the Prophet (peace be upon him). However, it is possible for Satan to appear in the dreams of those unfamiliar with the Prophets (peace be upon him) appearance, and claim that he is Allah's Messenger.
The narration of Ibn Abee Aasim from Aboo Huraira that the Prophet (peace be upon him) said, 'Whoever sees me in a dream has seen me, for I may be seen in every form' is not authentic according to Ibn Hajar - see fath al-baarree vol. 12 p400. He may then prescribe religious innovations for the dreamer or inform him that he is the Mahdee (the awaited reformer) or even Prophet Jesus, who is to return in the last days.
The number of individuals who have started religious innovations or made such claims based on dreams, are countless. People are particularly inclined to accept such claims because of their misunderstanding of the above mentioned hadith.