Given the whole "is it physical or mental stress" thing, I'd go with the example of Addictive Saliva and make the bow's power allow you to pass up dealing physical stress in exchange for mental stress. (Just like a RCV/RCI can use its claws instead, you could still shoot normal (physical stress) arrows with the same bow.)
Bow of Horror [-1]
It Is What It Is. It's a bow (Weapon:1 attacks, with a range of two zones, if you have arrows).
Heart-Piercing Arrows. When attacking with this bow, you can choose to pass up dealing physical stress as normal, making a Weapon:2 mental attack instead (with a range of two zones as usual). The bow can be used in this way even if you don't have any arrows.
Indestructible. The Bow of Horror can be broken only when fired at a creature that feeds on fear (such as a Malvora White Court Vampire or a fetch) by someone possessing True Courage.
Purpose. The purpose of the Bow of Horror is to spread fear; this may lead to Compels on the wielder.
Hmm, that may be too good. A bow should really have a range of two zones, and I was thinking [-1] to change to Weapon:0 mental stress, [-1] to increase to Weapon:2, and [-1] to fire without arrows, [+2] IoP discount -- but this is still better than Incite Emotion (At Range, Potent Emotion) in a [+2] IoP, which has a range of one zone.
...But [-1] of Incite Emotion's cost is the ability to do blocks and maneuvers, which isn't available with this, so I guess it's good after all.
Thoughts?