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No, it took place after Freddy's Dead. There were a few continuity errors (the town being back to normal after Freddy dominated it in just a few years, for instance) but it definately takes place afterward.
And as far as who I'd like to see Freddy battle?
Probably the Tall Man. The Tall Man can exist in whatever form he wants, really, and you're never quite sure if the reality he lurks in is the waking or the dreaming, so he could be more than a match for Freddy in both realms (as opposed to someone like Jason who, unfortunately, got turned into a bitch in the dream world).
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