Revealing mistake: When Morgan Freeman is about to take off in the helicopter to chase after the other two chasing Mr. Grey, one of the soldiers who is running to try stop him runs over a small pile of snow. The snow has a very unusual springing nature, obviously the springboard for the stunt, then as a result the soldier falls over.
Revealing mistake: When Beaver is fighting the alien in the bathroom, the cable operating it is visible.
Answer: Mr. Gray is not a hallucination, he is a living alien creature. Mr. Gray, and the rest of his species, are shape shifters and can also possess other intelligent life forms. He can leave Jonesy's body at will, turn into a red mist to enter another body, and turn into his normal monstrous form to kill if need be. How his species accomplishes this changing of mass is not explained.
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