I agree with sIKE's sentiment about the psychic weakness. The creature definitely needs to have a non-psychic attack, preferably an untyped attack, to combat creatures that are Psychic Immune. I don't see that as completely incompatible with a nightmare type of creature though.
A fear effect definitely seems like it would be psychic in nature, but perhaps it could have a normal, untyped attack bar, and then cause a fear effect in it's text box to other creatures that try to attack it, or that end the round in the same zone with it. Or perhaps it could have two separate attack bars, one normal and the other psychic.
The creature itself might have the Force subtype, to combo with [mwcard=FWQ03]Force Ring[/mwcard], but I'm also a fan of a new subtype such as Nightmare or Phantasm. I also wouldn't be opposed to the Spirit subtype, though I foresee others finding that controversial.