Ishmael is not an illusion, neither is the burning man that appears later on. One of the first cassette tapes given to you by Ocelot after the prologue is evidence that Ocelot also saw the burning man himself.
As for Ishmael, his identity is a major spoiler. He is heavily involved with Big Boss, so you should ask yourself twice if you want to read on.
He is Big Boss.
This inevitably leads to the next question:
Who is Venom Snake, if not Big Boss?
And the answer to that is (contains additional spoilers for GZ):
He is the unnamed medic who had to remove a bomb from Paz' stomach at the end of GZ. In TPP, he is unknowingly acting as a decoy for Big Boss.
All of this is revealed in mission 46: "Truth: The man who sold the world", which is almost an exact copy of the prologue mission 0, except for the beginning and the part where Ishmael leaves the ambulance, revealing his identity in the process. That mission is also the last story mission in the game, the missions following after that one being repeats of earlier missions.
The hitching in question seems to be related to shadow quality, or perhaps the way recent NVIDIA drivers handle shadows.
It is possible to eliminate all hitching by fiddling with shadow quality, either in game or via 'gr_init_dx11.lua'. I ended up altering the 'Medium' shadow quality preset in 'gr_init_dx11.lua'. This requires that you un/repack '~\Steam\SteamApps\common\MGS_TPP\master\0\00.dat' using MGSV_QAR_Tool. I settled on a shadow resolution somewhere between 'Medium' and 'High' but pushed the range scale ('CascadeShadowRangeScale' property) out further than 'Very High' to eliminate draw in.
So, these are the troubleshooting steps you should try, in order of effectiveness, if you're experiencing hitching:
- Lower shadow quality (also consider increasing the 'CascadeShadowRangeScale' property, which can be found in 'gr_init_dx11.lua')
- Disable/enable 'Shader Cache'
- Revert to NVIDIA GeForce driver v347.25
Best Answer
What you're referring to is generally called "Demon Snake". This is what happens when your demon points get to be rather high. The opposite of the demon points are Heroism points.
Demon points get reduced as you gain Heroism points so instead of making demon points go negative it stops at zero. Once you gain a certain amount of heroism points after reducing your demon points to zero you get a similar "visual difference". Since that point system is meant to be the opposite of "becoming a demon" (i.e. A large and being covered in blood) your horn shrinks in size until it is more of a bump.
This wikia page has a great explanation of the entire demon points and heroism points system.