These are two very interesting opposites to consider when thinking about this enchanting poem. I suppose one way of thinking about what happens in this poem is that it could be viewed as an allegory of what surrendering yourself to your imagination too much can actually do to you. It is clear from the very entrance of the "lady" that she is described in almost supernatural terms, emphasising her beauty and seductive nature:
I met a lady in the meads,
Full beautiful--a faery's child,
Her hair was long, her foot was light
And her eyes were wild.
The relationship that develops between them is one where clearly the knight-at-arms devotes himself completely to her and is oblivious to anything else. He is completely entranced and has fallen under her spell. However, the dream during his sleep warns him of his danger of giving himself so totality over to the power of the woman.
Interestingly, the "death-pale" suitors make us think of the paleness of the knight-at-arms that is indicated in the first stanza. This indicates that in spite of this admonition, the knight-at-arms still surrenders himself to the powers of imagination and ignores reality. This is why he is still "alone and palely loitering." He has proved himself an advocate of the imagination, and his inability to accept reality and the dangers of living our lives only for imagination is what leads to his own withering and decline.