1) Traits can evolve which provide no immediate physical benefit--anything that confers reproductive success, even if it is actually a disadvantage in some situations (peacock's tail for example) can evolve. What if improves you in some mental way that could make you a more attractive partner?
2) I often dream about sex (well I used to) but that never decreased my sex drive IRL; if anything, it increased it.
3) I have heard (guy talking about sleep on public radio) that it is physically possible to sleep more than you need to.
4) I can't think of any. You have to sleep, so how is being aware that you are dreaming more dangerous than just being asleep?
I don't necessarily think that LD has evolved independently of any other mental trait that we have. Who knows maybe cats and dogs can LD. I have often wondered what they must think about their dreams, if they really have recall.
Yea, I assume the harm would be psychological, if there were any. Maybe the slightly weird tends towards wanting to LD in the first place (no offense to any/all DV members I am including myself in this!

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