The Banished didn't create Iratus, a company called Lux Voluspa did. Lux is a company which specialises in the creation and research of Smart AIs based on non-human donors. Iratus is the first Smart AI of his kind (based on a non-human donor/Jiralhanae DNA). It was meant to be top secret but The Banished somehow found out about it and performed a raid on the company to steal Iratus.

After that, it comes down to the fact that all Spartan IVs have the Spartan Neural Interface as standard but we can use Cortana as an example...When Chief is inserting Cortana, he isn't just inserting her into his armour, it's a direct connection to his brain so he can mentally interface with her, in effect, Cortana exists in both the armour and Chief's mind. This allows Cortana to have access to most of Chief's internal systems (Chief has override control) and Cortana can directly manipulate parts of his brain such as his motor cortex to improve his reflexes.

I'd have to correct myself a little though, Cortana can't send the necessary impulses needed to move MJOLNIR but there is GEN2 variants which allow limited AI control over limbs for technical work. It does not appear as though Iratus has control over suit systems though, as there is a further cutscene after Dinh has woken up and he seems shaken by the experience but in control.

However if Iratus did manage to override the systems, it wouldn't be too much of a stretch to say he could control the armour even if Cortana couldn't because Iratus is a first AI of his kind, Spartan IVs armour is different, Cortana had no reason to take control of Chief's armour and it is possible for other variants in limited capability. It's also a common trope that AIs find a way to override human overrides, Lol.

Black Box is another AI which interfaced with Naomi and saw the world through her eyes. Theoretically if the overrides are out of the way, an AI could probably pump a Spartan full of testosterone and turn them into a real nasty prick, Lol. Black Box IIRC offered Naomi to increase certain levels of her hormones but she refused.

Black Box shows Naomi some of her memories from her childhood in one of the books.

In Halo Bloodlines, a Forerunner AI manipulates Black Team to cause them to fight each other by messing with their HUDs and screwing with them emotionally, Victor's memories are used against him by said AI to cause him to turn against, attack and injure Otto due to a grudge he held against Otto. Iona (Victor's AI) then reminded Victor of positive memories with Black Team to snap him out of his frenzy.

It takes it a step further when the Forerunner AI chases Victor's AI through his system and even uses virtual weapons against her, Lol. The Forerunner AI was also distracted by a visual image of Black Team's training days compromised of data from his personal logs. So even if Iratus didn't screw with Dinh physically, he is more than capable of causing chaos on him mentally.

So ultimately, an AI being directly linked to the brain and being able to manipulate parts of it, an AI being able to access memories, none of that is really new. There are only two questions which remain in this specific complaint and they are "Did Iratus override Dinh's controls?" and "How?" which are fairly easy to explain.

So with all of that out of the way, it does come down to whether you can suspend your disbelief that Iratus can haunt Dinh's dreams by having direct access to his brain. I don't mind it because I don't really see it as anymore crazier than some of the stuff I've listed and even beyond that there are things way more crazier in the Halo universe.

Creature (Flood) which can take control over any biomass with a central nervous system (aside from Hunters because they don't have one) and then form into one giant super intelligent biomass which has every single memory of everything it has consumed which can also directly speak through, control and connect to every single Flood in the galaxy, oh and this Gravemind is linked to all Gravemind's before it.

In Halo 2 when Gravemind is playing hand puppets with Chief, Arbiter and Regret, Regret isn't truly "alive" in that scene, he was already dead before that and assimilated by Gravemind, Gravemind "reanimated" his corpse using his newly gained memories/personality of Regret.

In Halo Evolutions, Gravemind takes the memories of humans it has consumed and uses them to mentally torture Cortana, if Gravemind has access to everyone's memories then it's not a stretch I'd say that Iratus has access to memories, all the Flood is doing at a basic level should be inhabiting a 'dead' body if we were to compare it to real world examples which some parasites are capable of doing.

Halo Rings are theoretically possible on that scale if you're an extremely advanced super species like the Forerunners and have the absolutely gigantic amount of resources required, a Halo Ring's fake gravity (rotational force) actually makes Scientific sense while Covenant's "We just created a device which created Gravity" doesn't.

But then they add in the Weapon aspect and that Halo Rings can wipe out all life in the Galaxy which has a central nervous system through a magical wave that only affects the neural system and they came up with a branch of Science which is completely made up called Neural Physics which can basically be described as Space Magic.

Can understand why some think Forerunners take things a bit too far (although I personally don't mind any of this) but I think there's a scale of "Space Magic" and Forerunners are on the very end of it, almost everything that Forerunners do has no Scientific reality aside from "Space Magic" Lol. Precursors take that to another level but I think that's more of a case of explaining them but they always would have existed and this crazy shit like Shield Worlds has always existed.

Then you add on that Prehistoric Humans existed but were wiped out and de-evolved by Forerunners (the current lore) or Humans were once Forerunners and built all of this shit but somehow forgot and became cavemen (the scrapped lore) and both Imo require stretching your mind a lot more than "An evil AI is manipulating someone's memories/dreams to turn them bad"

Halo though is a Sci-Fi which has often had a heavy AI angle as most Sci-Fi does, it has also never been a "realistic" Sci-Fi. So I do actually think it appeals to Sci-Fi Genre expectations and doesn't require too much suspension of disbelief, if anything it's a bit of a trope, I think most will just see "Evil AI is manipulating a Spartan's memories to turn him bad" and not really question it any further than that, we do because we like talking about all the canon and finer details.

So the only thing which requires suspending your disbelief is Iratus being in the nightmare with him, I can manage that considering the stuff that is already in Halo but if you want to make your own explanation as it hasn't been fully explained...You could say that he isn't actually there...You could say that Iratus accessed the memories and altered them to include him...You could say that Iratus simply spoke to him in his sleep which caused him to imagine Iratus is there in a regularly recurring nightmare he has...You could say that Iratus is simply showing his unconscious brain an edited version of the recorded events of that day which are all stored in the suits data logs.

Dinh is awake now though and seemingly fine so Iratus likely has other intentions, could be simply him trying to emotionally break Dinh, trying to make him blame himself, trying to make him blame someone else, ONI doing some dumb shit, or another reason, we do know based on Infection though that the new thing is Iratus taking over Spartan's, we don't know through what means exactly though, whether emotional manipulation, overriding the controls (which is dark AF, Lol) or a simple case of showing them shit which isn't there (as is done in the past, instead of a Spartan they see a Covenant/Banished or a bad former memory).