Answer:
   
   This "legend" is derived from a one of several conflicting
   interpretations of what was said about Rabbi Eliezer ben Horkanos in
   Nedarim 20a,b. It runs as follws:
   
     "Ima Shalom [R. Eliezer's wife] was asked why her children were so
     very good-looking. She told them " ` ... and when he speaks to
     [Rashi: copulates with] me, he uncovers a handsbreadth and covers a
     handsbreadth and he seems to be coerced by a demon."
     
   The conflicting interpretations are as follows:
     * Rashi (ad loc.). Handsbreadth: of her clothing. Seems to be
       coerced by a demon: Comes upon her powerfully, as if a demon were
       coercing him. However, some say that he covers himself completely
       [and only uncovers as much of himself as necessary], as if he were
       afraid of a demon.
     * Ra"N [R. Nissim bar Ya`kov] (ad loc.). Handsbreadth: [citing
       Berakhot 23B] a woman is permitted to uncover two handsbreadths
       when she urinates. He uncovered only one handbreath, leaving the
       second one covered. Seems to be driven by a demon: He would hurry
       [through the act] like a man coerced by a demon, but would
       [literally] speak to her during intercourse.
     * Ro'Sh [R. Asher ben Ye`hiel] (ad loc). Handsbreadth: [An obscure
       reason not easily figured out] or perhaps in order not to enjoy
       direct body contact, as in [intercourse] through a sheet
       (Yerushalmi Yebamot 1,1) [This reference to Rabbi Jose ben
       Halafta's behavior, while he was levir to his brother's widow, may
       be the origin of the urban legend about the "hole in the sheet"].
     * Hameiri (ad loc). ...he should uncover a handsbreadth of her
       clothing and cover that handsbreadth with his own ...
     * Rambam (Hilkhot De`ot 5,4). ... he should speak to her and sport
       with her a bit until she relaxes, and then couple with her
       modestly and not brutally ...
       
   Not much of a consensus, as you can see. Choose whatever
   interpretation you like. Rashi's first explanation has the ring of
   truth: It was R. Eliezer's way of building up sexual excitement by
   foreplay. As supporting evidence, we continue to read the text: "I
   (Ima Shalom) asked him `Why do you do this?' He aswered `So that I
   should not look [with desire] at any other woman'".
   
   Note that the Talmud in Ketubot 48 states that the proper way for a
   man and woman to have sex is for both to be nude; in fact it goes on
   to state that if one insists on wearing clothes during the act, that
   can be considered grounds for divorce. This was later codified in the
   Shulkhan Arukh (16th century), Even ha-Ezer 76:13
   
   For a detailed and sensitive discussion of Jewish views towards sex
   and sexuality, see "Does God Belong in the Bedroom?" by Rabbi Michael
   Gold (published by JPS), and "Kosher Sex: A Recipe for Passion and
   Intimacy" by Rabbi Shmuley Boteach (published by Doubleday).