Well, I'm no medical professional (and I suspect your T isn't, either) but there are a lot of articles in PubMed about the effect of melatonin on REM sleep and dream activity. It doesn't look as if the effect you describe is unusual or abnormal at all.

The one thing I know about sleep is that if we get enough sleep, we do dream, even if we don't always remember the dreams in the morning. Unless your dreams are very disturbing, my layman's guess is that sleep deprivation is going to be worse than having unpleasant dreams. And sometimes dreams can tell us things that our waking brain hides from us.

I think you should go to T this week, and discuss this with her.