It's you're regular pony guy with a bag on it's head. Weird. Ponys wear saddle bags, not paper bags
Korin Pony is the third boss, and must be beaten to reach level 3. He is based off of Korin, an MQ staff member whose NPC in MechQuest wears a paper bag over his head. In battle, Korin Pony may be placed too high and the top of his head will go off-screen.