Sounds like what you're talking about is a fungus called "ergot", also found in Bahia grass.
Here's what I found on ergot on one of the TAMU websites (cited below):
"The disease affects production of grasses very little, but it does have serious consequences on livestock that feed on diseased grass. When ergot is consumed in quantities too small to manifest pronounced symptoms of ergotism, it affects the general health and vigor of the animals. When ergot is consumed in considerably larger quantities over a long period, ergot results in either spasmodic or gangrenous ergotism. In the latter phase of the disease, hoofs, tips of ears, and tips of tail may slough, teeth may drop out, and hair may shed excessively prior to death. There is no effective control on host plants. The following will help to avoid losses of livestock due to ergotism: Employ a crop rotation where none of the host plants follow each other. Do not plant ergot-infested seed. When ergot appears in pastures, either clip the heads or wait until the grass matures and the sclerotia have fallen to the ground before using it for grazing purposes. Mowing borders and fence rows before heading will help eliminate secondary infestation. The disease is sometimes worse in these areas. Do not harvest ergotized crops for hay. Removal of sclerotia from ergotized cereal or grain prior to feeding it, is essential to avoid the ergot disease of livestock. To make ergotized grains safe for feeding, the sclerotia should be removed by the brine sedimentation process. By this method, the ergotized grain should be placed in a vat of salt solution (4 pounds in 25 gallons of water). When the grain is stirred, the sclerotia rise to the surface and can be skimmed off. Destroy screenings and skimmings. Grain treated by this method should be dried before storing." (Source: http://plantpathology.tamu.edu/Texlab/Forage/grasses.html)
So, yep, can be bad news. The disease, according to the above article, can infect both dallisgrass and bahia. I'll check with some folks tomorrow & post back anything new I can find. I've got a bunch of bahia & sure don't like it much. Decent for grazing (assuming it isn't infected!) but lousy for hay. Just about the time the protein maxes out, the dad-blamed seedheads sprout & it gets to be a mess.
601 running okey-dokey. Saw a MF 50 on a used car lot the other day, though, that caught my eye. I'm fighting the urge to stop & look it over. :-)
Try to get more info for you tomorrow.