Morpheus, a dream-demon, is making everyone in town have nightmares involving something that they are afraid of.
Eduardo loses his hair after Kylie rejects him...
In Egon's nightmare, he's walking naked through town, and when confronted by Morpheus about his naked-ness, rather then freak out he says, "Hmm. Fascinating. I seem to be experiencing a nuero-soboriphic event... with distinctly freudian overtones."
He's too analytical even for his dreams.
Eduardo's reaction to being told the consequences of crossing the streams in "Darkness at Noon".