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Disclaimer - I am not using word sex in any derogatory manner to insult the Lord. For me sex is very natural phenomenon
There is a story about Kubja that she wanted to go physical with Krishna and Krishna being open to everything, fulfilled her desire by actually going into sex with her.
Is that true?
Are there any references to it?
It is said that after this physical fulfillment she got above all lust, but before going above lust did the Lord Krishna actually fulfill her physical desires?
Yes. It is true that Krishna fulfilled Kubja's physical desires.
No. It is not true that they had sex.
As mentioned by an user in comments, Kubja relieved from all her desires after smelling the fragrance of Krishna's feet. She did not satisfied by performing sex with Krishna.
Kubja has two major desires
Satisfying her lusty desires
Krishna as visitor in her house
Krishna satisfied the first desire of Kubja by relieving her from all her lusty desires. And obviously the second desire by visiting her home as a visitor.
The assumption in your question is that performing sex is the only way to fulfill Kubja's physical desires, which is not always true with Krishna. He fulfilled her desires by relieving her from all her lusty desires. And as told by another user in comment, Vedas does not contain the pastimes of Krishna as in the form given by srimad bhagavatam, brahma vaivarta puranam, garga samhita etc.,
The following is the story related to the event under consideration and it can be clearly understood that all Kubja's physical desires are satisfied by Krishna, but not by performing the act of sex.
Lord Krsna then decided to go to the house of Kubja, the hunchback woman who had pleased Him by offering Him sandalwood when He was entering the city of Mathura. As stated in the Bhagavad-gita, Krsna always tries to please His devotees, and the devotees try to please Krsna. As the devotees always think of Krsna within their hearts, so Krsna also thinks of His devotees within Himself. When Kubja was converted into a beautiful society girl, she wanted Krsna to come to her place so that she could try to receive and worship Him in her own way. Society girls generally try to satisfy their clients by offering their bodies to the men to enjoy. But this society girl, Kubja, was actually captivated by a lust to satisfy her senses with Krsna. When Krsna desired to go to the house of Kubja, He certainly had no desire for sense gratification. By supplying the sandalwood pulp to Krsna, Kubja had already satisfied His senses. On the plea of her sense gratification, He decided to go to her house, not actually for sense gratification, but to turn her into a pure devotee. Krsna is always served by many thousands of goddesses of fortune; therefore He has no need to satisfy His senses by going to a society girl. But as He is kind to everyone, He decided to go there [..]
In order to fulfill His past promise, Krsna, along with Uddhava, went to the house of Kubja [...]
Without wasting time, as one does in such situations, Krsna entered the bedroom of Kubja. In the meantime, Kubja took her bath and smeared her body with sandalwood pulp. She dressed herself with nice garments, valuable jewelry, ornaments and flower garlands. Chewing betel nut and other intoxicating eatables and spraying herself with scents, she appeared before Krsna. Her smiling glance and moving eyes were full of feminine bashfulness as she stood gracefully before Lord Krsna, who is known as Madhava, the husband of the goddess of fortune. When Krsna saw that Kubja was hesitating to come before Him, He immediately caught hold of her hand, which was decorated with bangles. With great affection, He dragged her beside Him and made her sit by His side. Simply by having previously supplied pulp of sandalwood to the Supreme Lord, Krsna, Kubja became free from all sinful reactions and eligible to enjoy with Him. She then took Krsna's lotus feet and placed them on her breasts, which were burning with the blazing fire of lust. By smelling the fragrance of Krsna's lotus feet, she immediately became relieved of all lusty desires. She was thus allowed to embrace Krsna with her two arms and thus mitigate her long-cherished desire to have Krsna as a visitor in her house.
It is stated in the Bhagavad-gita that without being freed of all material sinful reactions, one cannot be engaged in the transcendental loving service of the Lord. Simply by supplying sandalwood pulp to Krsna, Kubja was thus rewarded. She was not trained to worship Krsna in any other way; therefore she wanted to satisfy Him by her profession. It is confirmed in the Bhagavad-gita that the Lord can be worshiped even by one's profession, if it is sincerely offered for the pleasure of the Lord. Kubja then told Krsna, "My dear friend, kindly remain with me at least for a few days. Enjoy with me, You and Your lotus-eyed friend, I cannot leave You immediately. Please grant my request."
[...] Although she requested Krsna to remain with her for some days, Krsna politely impressed upon her that it was not possible for Him to stay. Krsna visits this material world occasionally, whereas His connection with the spiritual world is eternal [...]
After satisfying Kubja with sweet words, Krsna returned to His place along with Uddhav
[Chapter 47: Krsna Pleases His Devotees, Krsna, The Supreme Personality of Godhead]
