The inclusion of this movie on this site will probably surprise a lot, as this mainframe film has more gay innuendo and coding than many others here, and nothing is said overtly. The queer content of this film centers around the main character Jesse, his best friend Grady and their high-school gym coach.
The least interesting, though most frequently cited of the queer characters is the coach, who is outed as a guy who 'hangs around queer S/M joints downtown... he likes pretty boys like you.' by the main character's friend Grady to Jesse. While the masochistic qualities of the coach are made obvious, his queer qualities are suspect as the bar he attends appears to have both male and female patrons, though there are two men showing affection on screen. The assumption that he is queer appears to be mostly manufactured by characters (and reviewers) who don't understand that straight people can be into S/M also.
However, Jesse enters the bar for no known reason, with his shirt wide open, and orders a beer. His coach finds him there and brings him back to the school, forcing him to run laps until taking a shower. While in the shower, Freddy attacks to coach and drags him into the shower, tying him up spread-eagled, stripping him and then whipping his ass, before killing him (as Jessy). As an audience we are fairly sure that this is not exactly standard straight fare. The scene is even more unusual when you consider that Freddie generally only kills teen-age kids, not middle age gym teachers.
The true queer quality of this movie comes from Jesse and Grady. Not only is Grady shown, subtly, as having a distinct interest in Jesse, though he is not able to deal with it - Jesse himself is the poster-boy for gay sensibility. As Jesse is slowly taken over by Freddy, he shows the horror inherent in realizing your orientation is taking over your body, making you want to do horrifying and unnatural acts. This reading may not be completely unintentional as Jesse himself makes numerous comments such as 'something [a man] is trying to get inside my body' or 'Fred Kruger wants to take me again' throughout the film. In the scene where these comments were made, Jesse has run away from his girlfriend with whom he was making out and runs to Grady's house, asking if he can sleep there for the night. Grady points out how weird it is that he would want to sleep at his house instead of being with his girlfriend, but let's him.
If this movie is viewed as a metaphor for dealing with being gay, then the end becomes more homophobic - Freddie is destroyed by true heterosexual 'love,' as Jesse falls for and kisses his girl, destroying the demon inside him. Or does it? In the last few seconds of the film, it appears that the demon wasn't destroyed, just hidden a bit further, ready to come out again stronger than ever.