Is the compartmentalization of memory consolidation to happen solely within the conscious and upper subconscious mind levels, a way to protect long-term memory from contamination with fantasies arising from the ruminations of the deep subconscious?

As we have described, that is its purpose. The mind is designed to function at the level of the deep subconscious in some regards as a different experience space, and this does not require storing long-term memories of what it is doing and thus provides efficiency and creates a strict separation of fantasy and reality. It would not serve the person to think about their past and not know whether something really happened or was, in fact, a dream of theirs—that would create all kinds of problems, misunderstandings, errors, and difficulties in getting along with others because dreams often create exaggerations of reality. This has a therapeutic benefit in many settings, particularly when disgorging accumulated negative emotions. These can be allowed to play out to an extreme degree in a dream setting as a way of forecasting what the consequences might be without taking an actual risk in reality in affecting the karmic future of the individual. It is like conducting a dry run—when the outcome does not count, it will not be on record, so this is much safer to do within the safety of the mind during a dream that will then be forgotten.