I had something similar in my logs today, too, except it wasn't the sex stuff. This is the first time it's happened.
The log entry looked like an ordinary referral from Live Search, but the search term was "BMW", a term that does not appear on that page, nor anywhere in my site, which has absolutely nothing to do with vehicles. I tested Live Search myself for that term, and my site does not turn up at all in the results.
My guess, until any other evidence turns up, is that this is referrer spam with a spoofed Referrer and User-Agent.
Make absolutely sure that your site is not in SERPs for the search terms you mentioned. When that happens, it can be an indication that your site has been hacked.
Re: your "search term" feature, be sure you always human-review the list before it's published, to remove any personally identifying data that searchers might not be real happy about seeing revealed.
[edited by: SteveWh at 8:57 am (utc) on Mar. 16, 2007]