Nightmare Fuel: Holy shit, yes. Leave it to Terry Gilliam to make a gingerbread man terrifying.
The spider horse. THE FUCKING SPIDER HORSE. *shudder* For those of wanting to scar yourselves: at roughly the midpoint of the film, the Mirror Queen sends an enchanted horse to kidnap a little girl, something it does by spitting webbing at her to ensnare her, then yanking her into the air and swallowing her whole. The fact we see her vanish down its throat by way of a shadow on the wall does not help. Of course, for added measure, when the heroes catch it, we can see her moving around inside its belly, and we get a shot down its gaping mouth & throat to see her terrified eyes before it carries her off into the woods.
Pity the poor kitten that got chopped up into bits into a fan...
The scene where the Mirror Queen's face starts to shatter like a mirror was pretty horrifying to see.
There's the way the queen brainwashes people into serving her. She knows magic, so you'd think she'd just cast a spell. Nope. She has this sort of medal with a huge spike on the back, so when she puts the medal on someone, she stabs them in the chest with it. And they become so devoted to her, they don't care! In the climax, she does this to Will while he's lying on the ground from a knife wound and is too weak to fight back. After she's been killed and the tower collapsed, Will still gasps out "serve my queen" when asked what to do next.
Special Effects Failure: Considering when the movie was made and the budget it had, some of the effects are unfortunately terrible.
What Do You Mean, It's for Kids?: The original stories have always been Nightmare Fuel specifically designed to scare the bajeezus out of any kid who hears them. The same thing here. Gilliam, however, has stated that he intended the film for children.
Jakob: It's as though someone moved the trees. Wilhelm: Maybe somebody did. Jakob:(laughs) Nobody moves a tree. Nobody! [A tree in the background suddenly shift. Accompanied by dramatic music.] Wilhelm:(holds Jakob) Don't be frighten, Jakob! Jakob: I'm not frighten! [They both look around, then at each other and shrug.]