I agree with both of you!
But couldn't the spirit also take a hand in shaping the forest, to give its beasts places to hide? Or even just shaping it to make humans think there could be beasts there? In a way, I think Sharp Fangs behind the Leaves could be a sort of spirit of pareoidia, and I don't see a reason to restrict its tools to create that effect.
Hmm, "pareoidia" doesn't seem to be a word - did you mean "paranoia"? If so, sure, that feeling that something is waiting to pounce on you, without you necssarily knowing what it is, could totally be something Sharp Fangs might embody (though I think Shadow probably embodies it the most). I feel more like a spirit of beasts would shape the beasts, however, to allow them to hide better among the plants, rather than reshaping the plants - that's what the plant spirits are for ;).
I think they meant "pareidolia", the tendency to see faces and other objects in random patterns. :)
Ahh fair enough, that word does come up in Google :D. Sharp Fangs is some kind of physical beasty-thingy, though, as per the fluff text on its spirit board describing how it used to hunt the Dahan until a pair of their hunters managed to outwit it or something so now it shows them a little more respect. I think it's one of the coolest-looking spirits, anyway, some kind of cat-bear-wolf thing with all teeth and claws and cool markings :D.
Yes, I meant that one! 
One argument for why such a tendency would evolve is to help creatures identify possible predators lurking in hiding. Sounds a lot like Sharp Fangs to me!