Does melatonin cause vivid dreams,?

Yes, it's a well understood side effect of melatonin especially taken to help in sleeping, primarily because its effect on the pineal gland.

It turns dreams much more vivid, often more colourful and, inevitable more sexual. In my case, disturbingly so. It has been associated with true nightmares. I stopped using it because of these effects. (Also, for the many millions of people who use prescription beta-blocker drugs, it tends to nullify their effectiveness on heart rhythm control and blood pressure. .