Yes, being Sheogorath, plus hit with a curse from Nocturnal for also being the Grey Fox, simply being too insane to understand your own past almost makes a form of sense.
Clearly, the Sheogorath you meet in Skyrim is just a projection of your own mind, as well, since you expected to see a Sheogorath there that wasn't also you.
Your own mounting power levels are also a figment of your imagination - it's just insane to expect to go from novice nobody's ever heard of to master of the arcane in just a couple game days! Likewise, why does the rest of the world seem to keep getting stronger as you do? Clearly, you were just underestimating your own strength in the beginning of the adventure, and overestimating it by the end.
Clearly, the Sheogorath you meet in Skyrim is just a projection of your own mind, as well, since you expected to see a Sheogorath there that wasn't also you.
Your own mounting power levels are also a figment of your imagination - it's just insane to expect to go from novice nobody's ever heard of to master of the arcane in just a couple game days! Likewise, why does the rest of the world seem to keep getting stronger as you do? Clearly, you were just underestimating your own strength in the beginning of the adventure, and overestimating it by the end.
You see though, SHeogorath forwardly tells you that you are in the mind of Pelagius III. This struck me as odd with the response that Pelagius III is dead. Then I started to think. Sheogorath must have known that ending the Greymarch would permanently turn into Jyggalag. He knew enough about the Greymarch and how to stop it to pass it to another character. What if Sheogorath set up the mind of Pelagius III as a sort of retreat for himself when he was banished from Jyggalag? The idea that Sheogorath is a part of your mind is hard to believe, otherwise some how you took a Staff, Wabbajack out of your own mind from a long gone Daedric Prince?
I think in freeing Pelagius' mind of its madness you released Sheogorath. He was a different mind of Jyggalag, could he possibly take bodies? We are not even absolutely sure how the Princes turned one into the other.