I think that killing a DC can't damage your mind in any way just like ignoring a DC and make it disappear can't damage your mind. Even though I believe that everything you do in waking life and in dreaming life has an effect on your mind ,but it wouldn't be necessarily bad. You know one may think that killing a DC will damage his mind and another will just see it as a possibility to experience a sword fight where you can't kill anybody for real. I guess that just depends on the person.
Although I am quite a calm guy in waking life so I usually don't go on killing sprees and I can't recall killing anyone in my dreams.