I tried to skim over all the replies, but there are a lot. So excuse me if I'm repeating some one else. The last time I went to an ENT specialist, he looked in my ears, stepped back and asked, "Lots of night mares as a child, huh?" Yup. In many ear specialists' an pediatricians' opinions, I've since learned, chronic ear problems can really add to this problem. Thank heaven, most of us grow out of it, and there really isn't much long term repercussion -- except a doctor can see the scarring on the ear. Yes, it is heart-breaking. I'm over 50 and still have quite vivid nightmares at times, but that comes from reading too much!
For children who think there are monsters in the room, a friend used to put something that smelled into a spray bottle with water (find something the child like the scent of, anything from a flowery perfume to clove oil). Call it anti-monster spray. When the child awakes, spray in the closet and under the bed and at the window blinds and curtains. Don't do it before the child goes to bed, or s/he may realize it doesn't work (until they are old enough to reason it out, by then you can leave the bottle for them to use themselves). But it may help them go back to sleep. If you know anything about aroma therapy, use it here.