I think you may want to shift the way you think about dreaming as well as fear. Actually, lets start with the mind. What is the content of the thoughts and ideas in you head? Is it not PAST EXPERIENCE made real to you through memory and PRESENT EXPERIENCE made real to you through your sense organs (eyes, mouth, skin, ears, nose). Start with that. What is in your mind are ideas and concepts formed by present and past experience although this formation may be quite complex the underlining substance is just everyday, ordinary experience.
With this view of the mind, you will then see that the mental state of dreaming is founded in Present and Past Experience. It has nothing to do with the future, and so there is no worry that a terrible dream would actually become reality. I think one thing that is important to note here, and this is what lucid dreaming is about, in peoples average experience of dreaming there is a sense that we don't have control over what is happening to us as if all the events have been laid out for us and we are just reacting to them. But, everyday experience is not this way: human beings have a choice (free will) or at least a very strong feeling that we have free will (and that is enough). Your fear of experience you dreams in real life seems to me, at least at first glance, to be a fear of not having a choice--of some terrible sequence of events happening to you in which you can do nothing but sit idly by and observe. But, this is just plain false. If someone has a gun to my head and is about to pull the trigger, I have many options. I can curse at the gunman, stand up proud, pray to my concept of the divine, or kiss the gunman's boots and ask for mercy. In short, there are virtually an infinite number of things I could do and this is under the worse of circumstances. Now, lucid dreaming is about realizing this reality in your dreams, but because your dreams almost entirely consist as ideas (i.e. there is very little external reality imposing itself on your senses as compared to the amount of mental activity occurring), you can do things in the gunman scenario that would normally be impossible. For instance, you could in an act of courage wrestle the person to the ground, take his gun, and then carry him off to the police station. Or you could allow him to transform into a dear friend in which his gun dissolves into some kind of present for you. The possibilities are again endless.
More seriously, it is also important to realize that stressful dreams are apart of life sometimes. Dreaming is in large part learning. What's going on is your mind is replaying events in the past with variations. This variation is trying to reinforce why certain ways of acting in previous events in you life were overall disadvantageous and other variations will reinforce appropriate responses to these events. This is learning and what the brain is trying to figure out ways of acting and thinking that will help you be a happier person. So, bad dreams are not necessarily all that bad. This is all apart of growing as an individual and we don't stop learning and growing just because were 30 or 40 or 50 or even 90. We are constantly striving to become deeper, more effective, and happier individuals.
I would like to add that I have had a false awakening many times and it is a truly agonizing thing. When it is happening, I hate it. But, I have talked to many people and they have never experience such a thing. Just for experiencing this you are a deeper more full individuality with some insight into different states of consciousness. I think in some regards though, it could be related to sleep apnea which may be something you want to bring up to your doctor next time you pay him a visit. I don't have sleep apnea, but I do vividly remembering it happening when one time (it has happened maybe 5 times before) when I was sleeping on a couch with my face in the corner (as in the angle between the back of the couch and the place where you put you arse). Because of the low amount of oxygen I was getting, I think it was induced. But, it can also be brought on by stress. Then again there maybe no real cause at all. It just happens from time to time. One thing I do tell myself when it happens though (after I identify that it is happening), I say (or rather know) that it is only momentary. In fact, it is more like I am waiting to be able to move as if I have to wait for my body to catch up with what my brain is doing. It is terrible, but deep down there is the realization that in a few minutes I will be awake.

The biggest problem I've been having lately is the appearance of actual events in my nightmares later becoming reality. After a nightmare in which an alarm went off at my school, the very next day, an alarm went off that sounded exactly like it. And just today in one of my classes, our teacher was about to show us a picture of something another teacher showed him, and upon scanning over the description, memories of a once-irrational fear and subsequent nightmare came flooding back to me and I had to excuse myself from class before I broke down completely.

So now I'm sitting awake though extremely exhausted but terrified to go to sleep because I may have a nightmare and have to sit there hopeless knowing it's all a dream but can't for the life of me wake up... and then wonder what part of it is going to become reality this time...

What can I do to stop this all from happening?

Thanks! I'm glad you liked the technique. I think you're right about how effective the anchoring techniques are. They seem to work as well as (and sometimes better than) reality checks and many other lucid dreaming techniques.

I'm like you in that I don't have nightmares very often, but it's always nice to have a way to become lucid whenever I do have one. I developed Technique #1 a few months ago after going through several weeks of having frequent nightmares. My usual lucid dreaming techniques weren't working well for me during those dreams so I needed something new. Fortunately, the nightmare trend eventually tapered off, though I did have a full night of back-to-back nightmares last night in reaction to a prescription medication. What a miserable night! I'll probably write a brief article about the effect of medications on dreams sometime this weekend.

~ Kris

I think I'll modify the approach in technique #1, though, so I can start working more on control.

I've not been getting a lot of sleep lately, I'm back to my habit of only sleeping 3-5 hours a night, because I've been working online a lot lately. So, sadly, my lucidity is very rare here lately.

But I have noticed that when I DO go lucid, the anchors I installed to help with my ability to maintain the dream are finally happening automagically.

I don't even have to think about staying in the dreams anymore, I just STAY.

I love it.

Thanks very much for your comment. It certainly is discouraging that so many people choose to adhere to superstition even in the face of scientific evidence that explains the cause of the events in question. On the other hand, there's so much we still don't know about how the mind works or how the universe works. Ryan Hurd recently posted an interesting entry about night terrors and sleep paralysis on his Dream Studies Portal blog, and one thing in it really resonated with me. He wrote, "From my perspective, this isn’t evidence of the 'supernatural' but an indication that we still need a more radical materialism to account for what is natural." He and I are definitely on the same wavelength in that regard. There is so much science hasn't figured out yet, and many of the things we now consider supernatural may one day be explained by new developments in science.

~ Kris