Was Willie scared of the squirrel?

Yes, Willy knew about squirrels, and he'd seen pictures, but he became frightened when the squirrel actually moved.

Willie recognized its shape from pictures he had seen, but he wasn't prepared for one that moved. He froze, terrified. The squirrel seemed quite unperturbed and went on scuffling about in the leaves, picking up nuts and titbits in its tiny paws. Willie stayed motionless, hardly breathing. The squirrel's black eyes darted in a lively manner from place to place. It was tiny, light gray in color, with a bushy tail that stuck wildly in the air as it poked its paws and head into the russet and gold leaves.