The argument in favor of translating it as the cautionary 'sleep' is fairly strong. Goya was a 'solid' Enlightenment man who was friends with other neo-classical enlightenment artists. He trained in Saragossa and spent time in Italy working on commissions from the Church and portraits of royals. He joined the Spanish academy when he returned to Madrid and became Official Painter for the King. So Goya was hardly an anti-establishment anti-academy romantic.
The argument is further strengthened by his own notation upon the second version of the etching: 'The author dreaming. His only purpose is to banish harmful ideas commonly believed, and with this work of Caprichos to perpetuate the solid testimony of of truth'.
However the contrarian in me likes the alternative argument in favor of translating 'sueno' as 'dream' and granting the image the more benign romantic message of unlocking the artists imagination to free the unconscious.
In favor of this argument is Goyas sudden illness which left him deaf at 46 and prone to hallucinations and fainting fits. His creative interests changed after his recovery and he moved away from standard academic concerns towards 'themes that cannot usually be dealt with in commissioned works'. These dealt with fire victims, shipwrecks survivors, bullfighting, prison yards and a lunatic asylum which was based upon his personal experiences. In the third and final version of The Sleep Of Reason Goya added a owl offering chalk. This may be interrupted as offering benign inspiration (or dire warning!).
Finally, while the 80 etchings in the Caprichos feature several pieces of satire, they also feature many pieces of nightmare images where Goya has clearly allowed his imagination to run riot over his reason. These are not typical pieces of art designed to copy the beauty of nature for moral improvement! These are nightmares dragged from Goya dreams. I have included some of Goya later works below this post. I find the final image the most disturbing.
Caprichos - Plate 40: Of What Ill Will he Die?
Caprichos - Plate 60: Experiments
Saturn Devouring One of his Children
The Yard Of A Madhouse
All Of Them Will Fall