Can I combo Dismiss Into Dream with Living Inferno or Cauldron of Souls?
Yes, it is powerful, but for 7 that is to be expected.

Targeting a creature affected by Dismiss Into Dream will have them sacrificed before the spell/ability targeting them resolves. This is because the effect created by Dismiss Into Dream will go on the stack after the spell targeting the creature.

To address your specific questions:

No on your combo with living inferno, a ruling on gatherer prevents you from assigning 0 damage:

http://gatherer.wizards.com/Pages/Card/Details.aspx?multiverseid=96874


  You divide the damage among the target creatures as you activate Living Inferno's ability. Each target must be assigned at least 1 damage.


Yes, on your combo with Cauldron of souls.