I've had sexual dreams and I've had sleep paralysis, but never at the same time. I can understand how a lot of people would think it is scary if you have no idea what is going on, but frankly I always found it a calm and fascinating experience. I've also experienced various hallucinations of movement or sliding around (even though I am perfectly still), what some would call an "out-of-body experience," and, yes, the hallucination of other figures being in the room with me. Even though I have some idea what is going on and I have gotten used to them when they occur, it still spooks me a little bit to "see" or "sense" the presence of a complete stranger in the room. For someone who has no knowledge of sleep paralysis or its symptoms, however, this could easily be mistaken for paranormal activity, which explains the prevalence of "sleep demons" in many cultures around the world.
I actually read this story before - on a website for queer people still in the closet. I recently submitted it to the mainpage, because the whole article is just plain lulzy.