It was kind of amusing that Watson assumed it was Holmes, and Holmes assumed it was Irene. And Irene, well she just assumed that this might all be a dream, or like that bloke had said, they were in some alternate dimension.
"2010, to be precise. And not only in the future, but apparently an alternate dimension as well, where the laws of our world do not necessarily apply. So either we've all gone mad, or this is the truth. I'm not sure which one is more likely, to be honest."