I consider Freddy's Dead and Wes Craven's New Nightmare to be self contained stories and not part of the continuity of the A Nightmare On Elm Street series.
Wes Craven's New Nightmare negates all the previous films by indicating that they are, in fact, just films.
Freddy's Dead takes place "30 years from the present day" and changes the entire continuity of the series. Why would Lt. Thompson move into Freddy Krueger's house? If there was enough evidence to remove his daughter from his custody and put her in foster care, why was there not enough evidence to convict him of the murder of his wife? Not to mention that it was explained satisfactorily in the previous films how he got his powers, "He was a child murderer before he died, and after, he became something worse." Come on, ancient Greek dream demons? Stupid. The whole movie is shit.