If Denny is Izzie's hallucination, we shouldn't be able to see him when she's not looking. But when Izzie goes to fetch the tequila, leaving Alex alone in the room, we stay with them to see Denny sit next to Alex and tell him they have to talk. Since Izzie isn't in the scene, Denny shouldn't be either. He's in Izzie's mind, he's not an independently moving, thinking, tangible ghost.