Sawyer definitely saw the horse. I don't if 'Smokey' The Monster can actually transform into other object, solid objects, like you're describing. I think at most he has a sort of psychological effect on people to draw them in .. Eko's hallucinations were probably his own doing mostly but the monster kinda triggered them. Something like, he uses people's weak points (perhaps by making them recall their past?) to lure them in.

I know it's kinda unrelated but why did the monster not kill Echo the first time he met him but did the second?