Regarding movement from the window...
Could the dog not have brushed the curtains? - at least formed some semblance of movement that was then assumed to be a person by the window? Seems as plausible as 'moonlight'.
Trouble with the moonlight idea is that on the surface, it would unlikely to fool anybody, but what sometimes happens is this:
Someone seems a 'shadow' of some description, caused by a trick of light.
it's 50/50 as to whether is really was something.
The person who saw it, is entirely honest and isn't sure.
They sit for a moment and 'run it through' again <--- this is where the mind plays tricks.
They convince themselves there was someone.
He tells someone else
etc etc
Now the imagination is reinforced by others saying "a sighting by the window"
It's quite a subliminal thing, but that initial 'maybe I saw something' becomes 'I DID see something'. (it's not too dissimilar to scary shadows as a child, only a little more complex)