This dream needs a little background before I get into it. Several years ago I was a very lost soul. I made a friend named Kelly, who rescued me from that state of mind before moving several months later.

Here's the dream:
I went back to my old home with some friends, when I remembered there was something I needed to do. In this dream instead of moving away, my dear friend Kelly had died those several years ago. I wanted to go visit her grave and leave her flowers, but when my friend and I had located the grave, it was being dug up. A preacher was there, and he told us that it was because she was unholy and was being moved to a more suitable location. We were eventually moved away by the police.

What could this mean?

Death in a dream often means the start of something new, and can be positive.

I think the dream is telling you that now that Kelly has moved, you can't depend on her anymore. It is up to you to keep yourself from becoming a "lost soul" again. The grave being dug up symbolises the possibility of your "(bad) old ways" coming back. The fact that you were moved away is good because you didn't stick around for those bad old ways. The police could stand for your conscience and your knowledge of what the right things are for you to do.

I think this is a positive dream about a new stage in your life.

Thanks. I hadn't thought of it that way. Makes sense though.