Well, yeah. And he found a way to make his madness contagious. And Nickelodeon gave him an outlet for that insanity (and then marketed it to children) and after about 1.5 seasons realized it was the nightmare of an insane person and canceled it.
Still want it to come back though.
And that was the Halloween episode. There are couple other episodes that border on disturbing. In non-Halloween episodes that had Nightmare Fuels like:
evil alien babies
an evil teacher that might be a malicious specter and does so much walk as float
turn people into bologna
the cute robot covered in blood and gore
an episode where the main character steals as many organs as he can and replaces them mundane objects...and treats the scenario as funny
and episode where the main character is assigned to a special training program over the course of which he violently kills off his entire special forces team
an episode where the main character projects images of horror and chaos to make people buy candy bars made from sawdust
an episode where there was a 50 foot long slime covered 'louse queen' under the skool that was messily applying lice to the students...and a special forces team dedicated to combating them
one episode had Zim going back in time and pelting his nemesis Dib with stuffed pigs to drive Dib insane or kill him
Zim makes a friend, who turns out to be a creepy stalker. Zim builds a machine to rip his eyes out and replace them with lens that make everything the poor kid sees appear to be Zim.
The real sad thing is the show was great satire. It was a little advanced for children IMHO, but for older audiences it's a great satire about high school, acceptance and society in general. I heard it was canceled because Vasquez wanted to go even further with the show, but, with Nickolodeon producing kid shows, wasn't allowed to go there.
I think they could restart the show on Comedy Central.