I have more possibilities that are a bit odd, I suspect.

-- Lady Ilina is actually kidnapped by the Castle Master and he/she hypnotized them into dying their hair and becoming Shinica
-- The Castle Master is Dracula, or perhaps Dracura. Or Alucard, or Arucard.
-- Xyz is actually the real Serenity and the playable Serenity is a figment of Xyz's imagination.
-- Serenity is actually a ridiculously human robot made by Alexis to save Newerth, and Alexis made false memories for the android Serenity
-- The statue of that guy in the Servant Quarters (between SQ Library and the room where Alexis is met) is actually Serenity's ancestor
-- Serenity is actually the daughter of the Castle Master, and Valkyrie lied about the identity of Serenity's father
-- The Lunar Soul Castle is actually sentient and thus counts as a living creature that dies if the master is slain
-- The Castle Master is Shinica or Luna
-- Serenity is a lucid dreamer and the events in Lunar Shadow are all a dream
-- Serenity has a mysterious illness and is quarantined, and the events of Lunar Shadow are all part of a story she is writing