what happened with Dan and Ellen?

Well in Season 2 he left to go to Europe, and then in Season 4 Ellen comes out as being a lesbian.

His balls got in the way.

If this show were being made now (2013), it would be a lot more explicit, but at the time, it was all subtext. Ellen is confused by the fact that she is certain she is gay, even though she has fond memories of sex with Dan.

Gay people are not incapable of enjoying heterosexual experiences. My lesbian cousin once said that sex is like ice cream: it's so good, that even though your favorite flavor is chocolate, if someone offers you butter pecan, you aren't necessarily going to say no just to make a point.

Being gay goes a lot deeper than who you can and can't be aroused by in a short-term situation, which is why "reparative" therapy can seem to work, in the short term, and you hear terms like "gay for the stay" applied to people (usually prisoners) in single sex situations.

Being gay is about who you can fall in love with, whose quirks you find endearing, and who still ignites your pilot light after 20 years, when all the novelty has worn off.

Talk to a bisexual person some time. You'll find out that they are open to sexual experiences with a lot of people, but there are classes of people they know they couldn't fall in love with. Unfortunately, if those groups are anything but genders, they sometimes are accused of being prejudiced, as though looking for a partner is comparable to hiring someone for a job. Some people could never fall in love with someone who doesn't like dogs. Some people are looking only for vegetarians. But if they are into hook-ups in the first place, a meat-eater with dog allergies isn't out of the question.