Didn’t you write about that butterfly experience a while back on your Gaia community blog? That story’s ringing a strong bell.
Yeah, Zhuangzi is way more entertaining than Laozi. The latter work has been so popular in the West because it fits our stereotype of Eastern wisdom, but it’s Zhuangzi that’s been treasured by Chinese drop-outs and intellectuals for the last couple millennia. I don’t have Wing-tsit Chan’s translation but I’ve looked at it in the bookstore and it seemed O.K. Haven’t read the work you mention, no. I do remember enjoying Arthur Waley’s Three Ways of Thought in Ancient China, though I’m not sure how many of his conclusions would hold up in the light of more recent scholarship.