This was indeed a very painful episode to watch. It probably ranks as the only episode of the entire series I was never able to watch in one sitting. The movie itself is an obvious rip on Gremlins which came out the same year. The only difference is, Gremlins was better.
What gets me is, the Hobgoblins never had an effect on the security guard. Everyone else that came into contact with them had their dreams fulfilled, usually leading to their deaths.
I believe this premise was further ripped by the movie "Wishmaster".
But still, a very, VERY painful movie to watch.