This was fascinating - thank you for posting it! *adds to memories*

Have you seen the sga community gpfg_studios? They had an interesting post about realities of life as a worker in the [US] porn industry. [Here: http://community.livejournal.com/gpfg_studios/4098.html]

Also, try the_index [http://del.icio.us/the_index] for adult fics sorted by fetish.

You asked about the 'undercover as gay' genre, and I was reminded of something graculus said in a connotations panel: it's a sub-category of 'aliens/drugs/outside forces/the author made them do it', in that it's a quick shortcut for the author to get the pair together. It's one of the reasons I love the 'undercover as gay' genre - 'Instant relationship! Just add semen!' *g*

On a serious note, your post talks about people who have chosen to be in the sex industry, but there are also many people who are forced into prostitution as part of the modern slave trade, so-called 'people-trafficking'. [http://amnesty.org.uk/content.asp?CategoryID=10314]
Legalisation probably won't help those people, since they are usually classed as illegal immigrants, and often treated as criminals rather than as victims.
I appreciate that that is a different issue, but I just had to mention it.