He is still not really awake.
Both my kids have done that and do that... especially if there were DEEPLY sleeping, and then were STARTLED awake and not allowed to transition out of it or to go back to sleep.
You are NOT "allowing" him bad habits by holding him. That is not a bad thing nor a big deal. He is just being woken up in a JOLTING manner... by some noise. Of course he is going to be out of it and/or cry/scream.
Its really not his fault... and it should not be held against him.
I know MANY MANY people, who do not wake up well. And these are adults. It is just sometimes their personality and disposition... and the manner in which they had to wake up.
To me, he wakes up fine... he wakes, then entertains himself in the crib until he wants to come out. My son was like that. It was really great, because he was so self-reliant and self-motivated.
So, your son wakes up well.
The "problem", if you want to call it that... is that he is sometimes woken up and MEGA startled and jarred awake... by outside noises. So, he naturally cries/screams/kicks like mad, when forced awake like that. I don't blame him. I would be mega irked and startled too, if those things woke me up.
So, it is the outside noises that is waking him up. Its NOT his fault.
Not his fault at all.
Then if you just leave him crying without doing anything... he cries on and on... then he just lays there, reaction-less. Well... this is also normal after crying-it-out... it makes the child worn out, numb from crying and the scared emotional angst that it was, and he just has to re-group. PLUS, he was previously sleeping SO deeply and then woken up so suddenly... its like whiplash. So, a kids brain, is also getting oriented to everything and regrouping. That's what being "dazed" is.
Anyway, my kids react that way too, if woken up from naps from some loud outside noise. ALL of a sudden. Even the no reaction thing after being scared witless from their sudden jarring forced wake up. They literally get dazed.
I REALLY don't see a problem here... expect for the loud noises/dogs barking outside/brother crying... that wakes up your son. THAT is the problem. Its the noise....
so, that is what you have to stop, or to use some kind of white noise in his room... to drown out the noises so he can sleep/nap better.
good luck,
Susan