The Story of the Lior...

Three nights ago Zusha woke up and asked to be let out of the crib because of the Lior. I was half asleep myself so I brushed him off. The next day he told me the following story:
"Mama said Zusha should take the slon (elephant) all day long and Lior came and Lior screamed, 'Slooooooooon!' Then he put a stick in my mouth and then he put a thermometer in my mouth."

I asked him to show me Lior, and he pointed to the knobs that release the drop-rail to his crib. But he claims the Lior is blue, which the knobs are not, and that he has a mouth, ears, feet...

He began to be afraid to go to his room alone. He used to love turning on the light in his room, but now he says, "Lior said Zusha shouldn't, only Mama can."
He dreads going to sleep and says straight out that he doesn't want to -Lior will scream again. He woke up every night since asking to come out. What do I do? I feel so bad for the little guy! He is getting no sleep whatsoever.