Twin Peaks - Ending explanation (Spoiler Alert)

If you do a Google search for "what happened at the end of Twin Peaks" you will find all kinds of theories about the ending. But there is a common theme to them and Wikipedia does a pretty good summary of season 2.

Windom Earle, Cooper's former mentor and FBI partner, comes to Twin Peaks seeking revenge because Cooper had an affair with Earle's wife, Caroline, while she had been under his protection as a witness to a federal crime. Earle went mad, killed Caroline, stabbed Cooper. He was committed to a mental institution but escaped. Hiding out in the woods near Twin Peaks. He plays a twisted game of chess with Cooper in which someone dies each time he captures an opponent's piece.

Cooper tries to discover the origin and whereabouts of Bob, and learns more about the mysteries of the dark woods surrounding Twin Peaks. He learns of the existence of the White Lodge and the Black Lodge, two extra-dimensional realms whose gateways reside somewhere in the woods. Cooper learns that Bob, the Giant, and the Man From Another Place all come from one of the two lodges. Meanwhile, Bob restlessly seeks another host. Josie Packard dies mysteriously during Truman and Cooper's attempt to apprehend her for shooting Cooper. At the moment of her death, Bob briefly appears to Cooper, drawn by her fear.

Cooper falls in love with a new girl in town, Annie Blackburn. When Annie wins the Miss Twin Peaks contest, Earle kidnaps her and takes her to the Black Lodge entrance in Glastonbury Grove. Cooper realizes that Earle's real reason for being in Twin Peaks is to gain entrance into the Black Lodge and harness its power for himself, and that his chess game has been an elaborate decoy. With clues from Deputy Andy and the Log Lady, Cooper discovers the entrance to the Lodge, which turns out to be the red-curtained room from his dream. He is greeted by the Man From Another Place, the giant, and the spirit of Laura Palmer, who each give Cooper coded prophecies about his future and demonstrate the properties of the Black Lodge, which defies the laws of time and space. Searching for Annie and Earle, Cooper encounters doppelgängers of various dead people, including Maddy Ferguson and Leland Palmer, who taunt him with strange denials, warnings, and falsehoods. The doppelgängers eventually lead Cooper to Earle, who demands that Cooper give up his soul in exchange for Annie's life. Cooper agrees and Earle stabs him. Seconds later, Killer Bob appears and reverses time in the Lodge. Bob tells Cooper that Earle cannot ask for his soul and then kills Earle and takes his soul. Bob then turns on Cooper, who experiences fear for the first time in the Lodge. Cooper flees, pursued by Bob and a doppelgänger of himself.

Some time after entering the Lodge, Cooper and Annie reappear in the woods. They are discovered by Sheriff Truman, who has been waiting for them since he saw Cooper disappear. Annie is bloodied and hospitalized, but Cooper's injuries are minor enough that Doctor Hayward is able to treat them in Cooper's room at the Great Northern Hotel. Upon waking, Cooper asks about Annie's condition, and then states he needs to brush his teeth. When Cooper enters the bathroom and looks into the mirror, his reflection is Bob, revealing that he is Cooper's doppelgänger from the Black Lodge. He then rams his head into the mirror and, while laughing maniacally, repeatedly mocks his earlier question about Annie's condition.

In summary, no Cooper is not the killer all along and no it is not in his imagination

Season three would have wrapped up the loose end. Unfortunately, Season 3 wasn't approved and we're left with this sloppy ending. No Lynch didn't plan it this way.

There were also subplots in the second season that bore little relationship to the main story. For example the James/Evelyn story line. This was totally unnecessary. In my opinion, Nadine's temporary "medical condition" and the arrival of Annie, also served no usual purpose.

After watching the whole series, I believe Cooper's soul is currently trapped in the black lodge, and BOB is occupying Cooper's body. BOB is in possession of all the souls of the people he's killed, and they're all in the Black Lodge (Laura, Maddy, Leland Palmer). As for Earle's body, who knows?

You say:

I just thought since the ending portrayed Agent Cooper becoming Bob he could be the one responsible for all the deaths and Annie was just his imagination in place of Windom Earle's wife (Sorry had forgotten the name).

Dale did not commit the murder of Laura Palmer. Leland Palmer did, while possessed by the spirit of Bob. This is revealed pretty clearly in the movie Twin Peaks: Fire Walk With Me which takes place before Agent Cooper even goes to Twin Peaks. Leland, while possessed by Bob, kills Teresa Banks first, miles away from Twin Peaks. Dale goes to investigate that murder. Meanwhile Laura Palmer is killed by her father (possessed by Bob). Dale arrives and they soon discover that the two murders are linked based on the single printed letter under each victim's fingernail.

Annie is not imagined. She is taken to the hospital after returning from the Black Lodge and is in stable condition by the end of the final episode of the original series.