The movie was originally shot with no computer effects for the monster, just an actor in a rubber suit. The final cut was deemed not scary enough, and all the computer effects for the creature were added.
The reason one of the actors fell on a nail in the movie is because that actor got a horrible burn and had to put a bandage on his hand
RiffTrax have recently riffed this movie.
The reason the pinata gets uglier and less corporeal is due to absorbing the souls of its victims and not just their negative energy. The positive energy is what increases its power.