What was the deal with Kate's horse?

At first only she saw it.  Eventually, we know Sawyer saw it, too. 

What was it?  Why was it?  Was it Smokey taking yet another form to get Kate to do something or go somewhere?

What the hell was the deal with Kate's Horse?

What was the deal with Kate's horse?

LOST Unanswered Question #1

What happened to Kate in the dress that Tom Friendly gave her?  When she got back to the cage after meeting/eating with Ben, she was clearly upset.  When Jack asked if they hurt her, she cried.  Didn't she say something to the effect of, "if you care about me you'll never ask about it"?  If so, how similar is that to what she said to Jack about Aaron before going back to the Island on Ajira 316?

The episode was Season 3- A Tale of Two Cities, I believe.

Does anyone have a final answer or insight on this?  This is one of the biggest unanswered questions of the series for me!

LOST Unanswered Question #1