I have chronic insomnia. Every few months, my current sleep medication stops working and my doctor and I have to try something new.
Often, the first few days on a new sleep medication bring interesting and/or epic dreams. I often wake up from these dreams thinking, "wow, what a cool idea for a story." (Usually. Sometimes I have dreams about wild boars and zombie babies, or kids in my library story time getting machine gunned behind a shower curtain. I'm not on either of those medications anymore.)
The problem with stories based on dreams is that dreams don't have to make sense, characters don't have to behave logically, etc. Or there might be an emotional energy that you want to explore, but it's problematic in some way - in a way that, as a writer thinking about publishing logistics, you worry will be hard to translate to the page and/or potentially alienate your audience. Those dreams are hard to adapt.
I also worry about telling people "this story is based on a dream," - are they going to point out that Twilight was, too?
I actually have two stories with the potential to be longer - probably novel length - that are "based" on dreams. When I say "based" on I mean that a single scene, a single emotional moment was presented to me in a dream, and I've built a world and a plot around that scene or moment. One of them is quite good, if I do say so myself. The main reason I haven't sat down to start writing the meat of the story is that I already have three partial novels that have been sitting unfinished in my computer for a decade. I need to make some progress on one of them before I pick up another long-term, large scale project.
The other one... well, it's one of those problematic ones. It's based on an emotional moment I found fascinating, but I'm not sure how well it would translate to a broader audience. But, like I said, I have other projects that need my attention more, so for now that one's on the back burner. Further back that the back burner actually - that one's on the back splash.