I'm being troubled by nightmares. Is there any account of Sai Baba's Udi being used to solve such a problem?

Yes, there is a specific account in Chapter 35 that addresses this very issue. A gentleman from Bandra was unable to sleep peacefully because he was tormented every night by dreams of his deceased father. When all other efforts failed, a Sai devotee advised him to use Udi. The devotee explained, 'If you too keep faith, the Udi will manifest its influence.' The gentleman was instructed to apply a little Udi to his head before sleeping, keep a packet of it under his pillow, and remember Shri Sai with devotion. The text states that this remedy worked immediately; he fell into a deep sleep, the bad dreams were erased, and his suffering ended.