Knowing that the character hasn't slept for days does make a hallucination a little more plausible. Originally, at least the way I read it, it was all set on one night, the guy takes some pills and then hallucinates. But, the message of your film is "Don't Do Drugs!!", so the fact that he's not slept is really neither here-nor-there.
Not sure how long you are planning the final runtime to be, but I think the story could benefit from showing us a few nights before this night. Perhaps you could show the guy slowly breaking down, while his friends are all enjoying themselves. Maybe the character buys, or borrows from a friend, some pills (speed, perhaps, but this could be left ambiguous). These are the pills he takes after three sleepless nights, these are what stimulate the hallucination. Now I think of it, maybe you could show these things in the form of flashbacks, as he drifts off at his desk.
Personally, I wouldn't mix handheld, home video footage within the actual film. I've not seen "Super 8" yet (I'm in the UK, we don't get it for another month!!!) so I don't know how the kids footage is used in that film. But sure, it could be a good way to let us know a little more about the characters, it would give them all more focused dialogue. As far as putting it in your script, just write exactly what you want the characters to say, it's all up to you, you've got to decide how your characters think and feel. That's what I'd do, then, once all the actors are in place, get them to read the lines as you've written them, then, if they're up for it, get them to do some improv, see what you get. At least that gives you both options.