Nothing against Ortensia here, she's a mother who saw her daughter being held by two random people, and they are also wanted, she reacted.
But I'm not here for that, this:
It took me a minute to realized, we've seen this before, kind of. I might be pull teeth here, but;
Mug's hallucination look really similar. (Also whats with Cup and losing his right eye? Like cmon man you need that to see).
I got to thinking and thought that, maybe, because of that memory, where Cuphead nearly died with the dip, it stuck with Mugman for long. I mean, he did have a nightmare about it right half he got healed, seeing his brother with the bandaged eye probably brought up the memories.
Its probably why his hallucination looked like that cause, maybe that was the last time Cup died?
Mugs literally says they've haven't done this in years, again I'm probably wrong, just an idea.
But it would make sense that the most recent death is where Cup lost his eye, or even if he didn't die with the dip (Highly unlikely since its dip) he was seriously injured, and nearly lost an eye, that can leave a scar in the mind.
I was also rereading as I made this and found this page;
The main hallucination is always smiling, but these little ones here is showing Cup frowning, in pain, in shock. Very similar to how he looked with half an eye being melted by dip, he's just his older self then his younger self.
I just saw the new update, realized a day later that hold up, that look familiar, so I had to share.
Thanks for coming to my theory.