The cryptic Mystery Man would probably personify Fred's jealousy. Fred first meets the Mystery Man at Andy's party, and the following lines are uttered during the exchange:
- How did you get in my house?
- You invited me. It is not my custom to go where I am not wanted.
Fred has met the Mystery Man before because he has allowed the feelings of jealousy to fester in his conscience, in effect 'inviting him in.' The Mystery Man is called "a friend of Dick Laurent" by Andy because Fred's feelings of jealousy are associated with Dick Laurent through his involvement with Renee.
The Mystery Man reappears again after Pete becomes involved with Alice, arousing the feelings of jealousy within him. At the end of the film, Pete and Alice drive out to the desert to pawn off some stolen merchandise to finance their escape from Mr. Eddy. However, their trip takes them to a cabin occupied by the Mystery Man. The Mystery Man reappears, Alice leaves Pete, Fred reasserts himself, and as mentioned earlier, is pursued with a video camera.
It is evident that Fred has been unable to exorcise the pangs of jealousy from his conscience, which has resulted in his realization of the root cause of his violence. Further evidence of jealousy as the root of Fred's violence is seen during the murder of Mr. Eddy, when the Mystery Man hands a knife and a gun to Fred, which are used to kill Mr. Eddy. In that scene, the Mystery Man is the one who shoots Mr. Eddy to death and, while holding the gun, he whispers something to Fred the viewers do not hear. In the next shot seconds later, the Mystery Man is no longer there. Only Fred is standing there before Mr. Eddy's dead body, and holding the gun used to kill him.
However, there are some conflicting interpretations to the Mystery Man as being a part of Fred's persona. In "Twin Peaks," the supernatural character of Bob at first seemed to be a mere embodiment of 'the evil that men do,' a method of explaining how Leland Palmer could sexually abuse and murder his own daughter, Laura. However, as the series progressed and the movie prequel made its rounds in the theaters, it was made very clear that Bob was a living entity, and not some mere fabrication of Leland's psyche. If Lynch's intentions for the Mystery Man were the same as that for Bob, then Fred's acts of violence would be the result of being possessed by the Mystery Man. Lynch has stated that Lost Highway takes place in the same story world as Twin Peaks.
This interpretation is alluded to by the old Lynch mainstays of flickering lights, which have been used in his previous films to mark the presence of evil spirits, and electricity and/or bright lights, which act as a conduit for the transmission of the evil spirits (if you recall, the Fred/Pete transitions are marked by the sudden increase in the intensity of nearby electrical lighting).
Additionally, some people, including Robert Blake himself, believe that the Mystery Man is the Devil. If you look closely at the numbers Fred dials when the Mystery Man tells him to "call him," the last three digits of Fred's home phone number are 666. The dialogue involving Fred's "invitation" of the Mystery Man also evoke this interpretation, as it has long been a superstition (much akin to the similar rules involving vampires) that evil must be invited into a home.
And there you were, lying in bed. It wasn't you... it looked like you...