This quote from Scythemantis' review of the Dullahan sums it up well, I think:
"Why do we forget the grotesque in favor of the streamlined and threatening? A headless corpse is "scary," kind of like how a killer robot or an angry grizzly bear is scary, but a headless corpse with a cartoonishly exaggerated, impossibly huge mutant head rolling around with it is insane. A rotten horse with a normal sized body and a fifteen foot face is disturbing. Monsters don't need to be realistic or even serious to be frightening - the more outlandish, the more impossible, the more ridiculous, the more they'll leave you questioning your very sanity, should you even escape with your brain still attached."