Fragments of interpretation
Just watched this movie and thought it was wonderful - in fact I can't remember seeing anything this well crafted or thought provoking in a long time.
My view on the Elizabeth Pena character was that rather than a demon per se she represented the animalistic part of Jacobs mind i.e. the purely instinctual that strives only to live in defiance of all odds, represented in the dream by the fact that her relationship with Jacob was based almost exclusively on the basic passions of lust and sex, rather than the intellectual pursuit of love. I think this is why in the dream she tried to turn his attention away from what he feared was his future - no relationship with a previously adored wife, no great relationship with his children etc. and thats why as Jacob becomes more at peace with himself, he instinctively moves away from her character. I took the deleted scene showing her transformation into his corpse as a sort of last ditch effort of his animal mind warning him of his fate in order to get him to fight.
I also think the entire sequence regarding the drug was not intended to be taken literally although I suppose it's open to interpretation - I took it as a dying man feverishly trying to justify why he had been bayonetted by a member of his own squad, and it naturally took the form of a drug as immediately prior to the attack, the soldiers were all smoking pot except for him.
Either way; beautiful film - not scary at all in my view, and I thought Tim Robbins was perfectly cast; his performance of bemused detachment mixed with bouts of furious terror perfectly captured both how we act in dreams generally as well as the various stages of acceptance of death.