The quest giver tells you he is an evil spirit.

Evil spirits, can be turned.

Bobo is not an undead for turning purposes, not does healing harm him.

The lady is perhaps a supersticious person who doesn't have a gazillion spellcraft / lore ranks and understand the difference between spirits and *spoilers*?

They're illusions. That's made supremely clear. Illusions are not undead. You failed your Will save.

-Blurb- hit it right on the head. Don't believe everything that you hear. :)

Not a bug.