No, your eyes do not deceive you. That is a blood-spattered pony as Kratos, who probably just accidentally murdered his family and is gearing up to go on a deicidal rampage. OK, I'd actually play this game if it existed, no question about it.
Much like with the Fallout fan fiction crossover, this particular image has been used in a fan fiction story series titled “Bridled Fury” (see what they did there?).