We've been warned by the mods not to talk about certain 3-letter-acronyms, so let's err on the side of caution and not even hint at it.
I agree that getting blackmailed is dumb, but so is the MC in some ways. He's got the hots for the girl and is afraid that he'll lose any shot with her if she finds out he's been perving on her. Acquiescing seemed like the smart thing to do at the beginning, even though it's not, but it's the start of the slippery slope, which he's now racing down. But, frankly, dumb as it is, I've seen guys do dumber things.
As for Sarah, I've also seen girls in far more dysfunctional relationships. And she does dump his ass, so she does figure out she's being dumb and stops being quite so dumb. True, she's still dumb in other ways. But at least in that, she's smarter than the MC.
No, it doesn't make logical sense, but the real world is sometimes even worse.
