This is an evil campaign and the NPC granting our party quests and such is a night hag. The 'horse' in question is a nightmare.
[_E PC] "Curious horse you have."
[Night Hag] "I call it my little Nightmare. Do you know how they are made?"
[_E PC] "no."
[Night Hag] "You find a pegasus, rip off its wings and torture it."
[CG PC] "That doesn't seem very nice."
[Night Hag] "Pegasi don't feel pain. Also, it is not really torture, as all you're doing is tickling the pegasus. Hard. with a sharp object."
[CG PC] "Oh."