I've had periods of my life where I had terrible nightmares.  Thankfully those have been gone for a while.  
For years (decades?) I've had several dreams that I would have several times a year that were similar or on the same theme.  They were dreams where I was struggling to do something.  I would always wake up still struggling.  Once I began living as Kate, those dreams gradually began resolving themselves.  The struggle to accomplish whatever became easier.  Finally, several months ago, in one of the main ones I accomplished the task that I had never before been able to do.  I woke up amazed that I had finally done it.  Some of the other irresolvable dreams gradually resolved themselves, too.  (That's got to mean something!)
Since the surgery I've had a couple of dreams where I had either a penis or something like one.  I expect those to fade, too, as I adjust to my new body.  (My new wonderful body.)  I would guess that it is just my brain adjusting to the new reality.
- Kate