Here is my analysis :-
Yes it does turn them into White Zetsus, but the process only affects the Body not the mind. The mind keeps on dreaming even when as a White Zetsu (Supported by Hagoromo's flashback) , so in a way, MT is infinite in nature.
Tsukuyomi in the end is just a Genjutsu. In the end, a user may mold it in any way he wishes. Whether it may be a Nightmare or a Dream; it's the user's choice. So, MT can be modified in any way the user desires.
It is both and the manga has supported this. :sdo:
You are wrong, cause the "Huge Dream world Genjutsu" was Mugen Tsukuyomi. Madara intended to control the Dreamworld MT, that was what he wanted (He perhaps wanted to unify all the dreams) and make his dream world which didn't happen because of BZ's betrayal. Why would he cast another Genjutsu when he already has MT to control ?
Hope you understood.

kun: