Nightmare Doll is deffinitely one of the items with very interesting history.
Accoriding to https://tibia.fandom.com/wiki/Nightmare_Doll:
It's a doll wearing Demon Set, boots of haste and ruby necklace.
This item was originally created by Li Dao for Tibia Friends' item competition. It didn't win the competition (it came on second place) but the content team liked it and added it to the game.
This item can only be obtained as a gift from CipSoft or on a Promoted or Supported Fansite contest.
Nightmare Doll was the first sprite made by Li Dao. Unfortunately sprite wasn't related with "friendship" so it lost with Friendship Amulet during their contest. Amulet became an official TibiaFriends fansite item, but Nightmare Doll was also really appreciated and get 2nd place. For now this is the only item, which has been implemented into the game without winning 1st place.
On TibiaRoyal (link doesn't work anymore due to fansite not existing) you can find very interesting article about Tibian Artists. One of them is also Nightmare Doll's creator - Li Dao.
A very controversial player, hated by some and loved by others. But it doesn't matter if we like him and his ways or not, there is no doubt that he is one of the precursors of Tibian art. Even being retired, he is the player with more items added to the game, included the famous nightmare doll, the only item chose by Cipsoft after the old volunteer era, without winning the 1st place in a fansite contest (actually he got the 2nd place with it on TibiaFriends contest). Winner of several fansite contests, his dolls marked a style that went crazy the whole community, and it was imitated by many sprite creators until today. Also, he made designs for sites like Funtibia and Mmotter.
You can read quite interesting interview from 2012 with this item's creator here:
He said there some details about his work, including the Nightmare Doll.