NOTE: I hate to be another victim of the whole rape theory, but I figured that's what happened before I even read the rape theory, and even then mine's drastically different, so don't stop reading just because there is a rape involved.
Maybe Madotsuki was a closet or maybe out of the closet lesbian, and her lover was Poniko. Poniko was just in it for the sex but Madotsuki was in love with her. They got into an argument and then Poniko raped her (yes lesbian rape is possible, even if I don't know how it works). Uboa is Ponikos' inner scariness/ugliness, spawned by the lights going out because love making (or rape in this case) almost always goes on in the dark.
Madotsuki's escape was video games, like Mother which explains the 8-bit world (she's Japanese so she actually has access to this game). All the while she has her escapism, she feels evil inside, (Demon effect is found in the 8-bit world) despite it not being her fault. (A side effect of coming off of a recently ended relationship is self blame) and then changes styles a lot (Long hair effect, Blonde hair effect) to try and appear pretty and/or normal, even though she feels terrible inside, which explains how she got these effects from ugly creatures, reflecting her self loathing. A lot of the other effects are maybe childhood related. Fat effect may be when she was a teenager and was going through weight problems, Poop hair could be when she was being bullied and they threw dog shit or something at her. Witch effect could be a Halloween costume and the flight scene could represent that she was truly happy, almost high if you will, that one year, although it had to end (pressing the 1 key during flight causes you to fall and wake up). She could've biked a lot as a kid, and (if you found the effect that makes you squishy right after you found Bicycle effect like I did) Squishy effect could be her all limp and tired from after bike rides.
I know this sounds weird, but the Cat effect is found in a crowd of people like statues, so maybe she was a stripper, or when drunk, dressed like a furry to please some guys (I know this contradicts the lesbian theory, but she could've been bisexual).
Masada could've been a popular musician she liked at the time, who specialized in scifi sort of techno, and liked to be alone, and was terrified that someone would kill him (fear of rabid fans who go crazy) and that's why he backs away from you when you have a knife. She never got to meet him, which is why he doesn't talk to you, because her subconscious can't give him anything to say.
Midget probably meant that she felt short at school. She finds the Midget effect in an empty space, so maybe she felt alone.
I don't know the name of the five armed girl and I can't be arsed to go look it up, so she's the F.ive A.rmed G.irl. I know her acronym is FAG so just get the immaturity out of your system before continuing the read.
Obviously, the tunnel, the mangled look of FAG and the fact that you discover FAG's true look by activating the Stoplight effect means car wreck of some sort. Maybe she was bicycling down an unfamiliar road (which explains the weird imagery and white background) when she sees a girl get hit in a tunnel. She gets traumatized by the event and hides her traumatization in, again, Mother, which is why it's accessible only by finding the hidden maze in the 8-bit world, she drowned her sorrows in video games.
She killed herself after all of this because after being raped by Poniko, she had dreams of her bad memories, which all came flooding back to her and she killed herself. WITH A KNIFE.
That's right.
She stabbed herself.
The girl you play as in the game is maybe her sister or her friend or someone, who was deeply saddened by her friend/sisters death and locks herself away in her apartment because of her depression. She happened across her dream diary,
she reads the pages of the diary, and the words brand themselves in her mind, which causes horribly twisted versions of her friend/sisters memory to come to her in her dreams. (When you load a save, it says "Choose a page to read" this is when Madotsuki's friend/sister finishes a dream and goes to look in the diary for a match in what she dreamt) She finds all of the pieces of her friend/sisters memories and drops them in the nexus, gets horribly saddened when she looks at the effects and realizes that her friend/sister is not there with her anymore, and goes to jump to be with her sister.
Again, this is all just a theory until KIKIYAMA comes out with the real story. This isn't a terribly good or original theory, so please, tell me what you think :)