A brief note: To interpret "Babylon Revisited" as a tragedy is only one point of view, and a pretty narrow view of the story. If you only see the story as a typical tragedy, you'll miss a good deal of the complexity inherent in the characters and mood. (For example, the ending might not be as melancholy as "Tragedy" suggests.) So take this with a grain of salt. On another note, we've reversed the order of Dream Stage and Frustration Stage from the traditional Booker order to better suit the plot of "Babylon Revisited."
Charlie has come to Paris with a firm plan; to show Marion and Lincoln that he is reformed and to take his daughter home with him. He's firmly committed to the course of action from the start of the story? Maybe not. That Charlie starts off at the bar at the Ritz suggests that there may be more to this story than a simple dream gone wrong.
Despite Charlie's insistence that he's changed his ways, no one seems to believe him, including the savvy reader. This is largely due to the fact that Charlie's actions aren't quite in line with his claim to be a new man. In the first place, he's still drinking a drink every day – the first thing he did when he got to Paris was to look for his drinking buddies. Second, he still holds a bit of admiration (though it is indeed mingled with disgust) for his old life. Plot-wise, the repeated appearance of Duncan and Lorraine is the fly in the ointment (i.e., the small flaw that ruins everything). The seeds of Charlie's downfall have been sown, and we're waiting for the end to come.
Again we see that "Babylon Revisited" doesn't totally fit the mold, because this Dream Stage comes more than halfway through the story. When Marion finally gives permission to Charlie to take Honoria home, it seems as though he has gotten everything he wants. We shouldn't forget about that fly in the ointment, though…
And there's the fly. We should feel the same horror that strikes Charlie when the drunk, raucous Lorraine and Duncan invade the home of the quiet and reserved Marion.
This is the ultimate downfall, since Charlie has lost everything he came to Paris to get. Interestingly, Charlie's loss is presented as a sort of denouement; as though it were inevitable all along. Perhaps that's because it was. Check out "What's Up With the Ending?" for more.