I have heard this discussed elsewhere.
According to folks such as Anthony Calfo, the "dust" in the water will cause no harm to macroscopic aquarium inhabitants - fish, corals, etc. However, it will be a pain to clear off the rocks for days to come.
If you add a bunch of sand all at once, you WILL harm any life that you have in the sand. I have heard it said that you should add no more then 1/2 inch of sand at a time, and then give the substrate microfauna about 4-7 days to recover / migrate / etc.
Lastly, there are some ways to avoid the sandstorm. Here is my favorite technique.
1. Put your new sand in a small aquarium, tub, etc - something with enough volume to be able to perform the next steps. I'd suggest a 10G aquarium. You can get them for $10 at Walmart.
2. Do a water change on your display tank, extracting enough to fill your "new sand container" with enough water to cover the sand plus 6 inches or so.
3. Add a powerhead or airstone to the new sand container. Something simply to create some water movement, etc.
4. Let that sit for a week.
Then to put the sand in the tank:
1. Fill a ziplock bag with sand.
2. Sink it to the bottom of the display tank.
3. Slice it open with a razorblade.
4. Allow the sand to drain out of the bag.
Again, do this only adding about a half inch of sand per 4-7 days.