AA, Donnie's sister's boyfriend IS the rabbit tormenting him.
Do you remember at the end when Frank runs Gretchen over and then Donnie shoots him in the face?
I disagree. I think that the whole thing is a psychotic episode brought on by his obsession with his sister.
Donnie is clearly obsessed with sex. Look at his discussions of smurfs "What's the point of living if you don't have a d***?" he asks. Watch his interaction with his therapest.
When Donnie is kicked out of his room because it's been crushed, he sleeps on the couch in front of a picture of his sister as a little girl, hugging her stuffed bunny.
The only difference, of course, is that now she's sleeping with Frank - a giant bunny.
I won't get too deeply into it, but I think that everything is part of Donnie's dream psychosis. His girlfriend, flooding the school, the whole thing.
That's one interpretation, at least. Sure, the other is time travel, obviously.
Look at the double feature that Donnie takes Gretchen to during the movie: Evil Dead and Last Temptation of Christ.
One's about time travel and the other about a man's fantasies in the moments before he dies.