A small horse? Oh, man! Imagine if you loot a small horse! "Did the goblin witch have any magic weapons?" "No, but she did have this small horse." "Awesome!"
You could cast Awaken on it and have adventures with it. I would call him Frederick the Miracle Horse. He would take levels in paladin.
I should give my players more weird shit, like those magic wallnuts, if you crack them up, a tiny magical creature comes out and sings and dances and then just hides away.
But anyway, Zak making the group tense and all, together with the explaination? Loved it.