In reply to Ksharp.

Yes and no. People do use dummy variables in multivariate analyses, but the interpretations do not always make sense. For example, you meantion clustering. If you create a dummy variable for the Sex variable so that Female=0 and Male=1, what does it mean if a procedure reports that the center of a multivariate cluster has coordinate Sex=0.666? It means that the cluster has twice as many males as females. However, the Euclidean distance between clusters no longer has any meaning.