"They are together now," Lohan's rep tells PEOPLE.
A source close to the actress adds: "They argue, they don't argue." At the moment, "They're communicating. They're hanging out. Whatever's going to transpire there is going to transpire."
The outlook for the couple was more dire on Thursday. "Harry broke up with Lindsay yesterday at Chateau Marmont after they had dinner on the courtyard patio," a source tells PEOPLE. "Nothing happened at dinner, but shortly afterward, he broke up with her."
Why the split? "She was too much drama," says a source close to Harry. "Lindsay did cut down on the partying, but with her it's all relative. Harry is sober. It wasn't the partying that broke them up. Harry's more low-key and not into the same stuff she's into."
However, the Lohan pal says, "No one 'dumped' anyone. You don't dump people when you're 20 and 25. You have a mature relationship, and you take a break and you see what happens. Everyone does that."
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"She ran in, sat with her group, put down her cell phone and cried to her pals," an observer tells PEOPLE. "The group looked very concerned and listened intently to what she was saying."
After the Chateau, Lohan went to Hyde Lounge, where she arrived around 12:30 a.m. and stayed until the hot spot closed at 2 a.m. She mingled with friends and didn't appear to be distraught: "She was having a blast," says one patron, "even with a broken hand."
Lohan and Morton, 25, owner of the restaurant chain Pink Taco and son of former Hard Rock Cafe chain owner Peter Morton, started dating on July 2.
Their relationship started out promisingly: They spent a cozy Fourth of July week in Malibu lounging at Morton's pad (where they blasted Led Zeppelin over the speakers), dining at Nobu, shopping at the Malibu Country Mart and going out with pals.
By mid-month, the lovebirds were nearly inseparable. Among their many outings: holding hands at the Prada party in Beverly Hills on July 13, hitting hot spot Les Deux with pal Nicole Richie on July 14 and celebrating David Spade's birthday together on July 15.
"They get along great and have a lot in common," a source told PEOPLE in July.
Morton has been credited with Lohan's recently toned-down lifestyle – and helped her through more than one sticky situation: He was on the scene when she was briefly hospitalized on July 26 (her camp blamed dehydration and exhaustion) and subsequently missed work on her upcoming drama Georgia Rule.
He was also there for her when her Hermes handbag went missing at London's Heathrow airport earlier this month after they attended the premiere of Lohan's upcoming film Bobby at the Venice Film Festival.