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Continuity mistake: When the huge water wheel rolls to the beach and falls on its side, it falls with the broken, wide, wood side of the axle facing up. However, as Will and Norrington climb out, inexplicably it's the slim side of the water wheel's axle that is now facing up. But in a following shot, it is the other way round again. (01:52:22)
Answer: Yes, the idea is that this poor soul got too close to one of the Kraken's tentacles and one of the suckers pulled his face off. Presumably he can still breathe in some fashion, something has been left that allows air access to the lungs, allowing him to still be alive, although it doesn't sound like he's long for this world, so presumably the damage is extensive.
Tailkinker ★