During angry exchanges at the High Court in Glasgow, Alan McCombes, 55, accused Sheridan of being a "pathological liar", adding: "JK Rowling could not make up the kind of stories you have made up. It is Harry Potter and Lord of the Rings combined, Tommy."
The court also heard from a retired head teacher who said she had found Sheridan and a friend in her flat, after they apparently had had sex.
Elizabeth Quinn, 71, said she had been shocked to learn of Sheridan's victory later in a defamation case, terming it "an OJ moment" - as unexpected as OJ Simpson's acquittal in his celebrated US murder trial.
Sheridan and his wife Gail, both 46, deny committing perjury during his successful defamation action in 2006 against the News of the World, which had published lurid allegations about his private life.
Mr McCombes had been the Scottish Socialist Party's media co-ordinator for the 2003 Scottish Parliament election and was a key figure in the party.In late 2002, he said he met Sheridan in an office of Glasgow City Chambers to discuss information he had been given.
"I put it to Tommy he had attended a swingers' club. His response was to accept it, to acknowledge the fact he had attended. I expressed my concerns …not in a moralistic way, but that his public presentation was in sharp conflict with his private behaviour," said Mr McCombes.
"He had presented himself quite deliberately and consciously as a very squeaky-clean politician, who constantly referred to his relationship with Gail, and who was seen, I think, as almost the Daniel O'Donnell of Scottish politics, somebody who was very, very clean.
"I believed his activities were more akin to the lifestyle of an English premier league footballer than somebody in leadership of a political party. We had an election imminent … and a chance to make a startling breakthrough. I was concerned if this story appeared in the media, then that would damage him, and the party would have collateral damage."
Mr McCombes said Sheridan had confessed at a meeting of the SSP's executive committee. He insisted there was "not a scintilla of doubt" Sheridan had made the admission.
Sheridan alleged during cross-examination that Mr McCombes had been an organiser of plots against him, and had used his evidence to launch a character assassination.
"Nonsense," replied Mr McCombes."You have made accusations in this court and in 2006 that are quite outrageous."
Earlier, Ms Quinn, of Glasgow, said she had been a friend and neighbour of Anvar Khan, a journalist who alleged she went with Sheridan to Cupid's sex club in Manchester.
She told the jury that in 2003, Ms Khan had been living in London, and returned to Glasgow and stayed for a few days with her. Ms Quinn arrived home and had thought she was alone in the flat, but Ms Khan and Sheridan came into the room.
Asked if she was in any doubt, Ms Quinn said: "Absolutely no doubt whatsoever. I was so stunned by the fact of him coming into my living room and presenting himself to me. I thought it was very stupid behaviour."
Ms Khan had let her know they had been having sex.
Questioned by Sheridan, Ms Quinn conceded having had "misgivings" about the defamation verdict, and that she had referred to it as "an OJ moment".
Sheridan, conducting his own defence, asked her: "The truth is you are here to support your friend … she has asked you to give evidence to bolster her lies."
The trial continues.