If it were me, I'd be worried he'd roll on it in his sleep and it would sing him AWAKE! LOL! Also, toddlers can get involved with stuff and that keeps them awake too. So, to me it's not so much an issue of it being a 'prop', as it being either a distraction or a potention middle-of-the-night disaster!
My son had a similar request at one point (for a noisy toy) and I told him the toy was too 'crunchy' to sleep with -- that it would hurt him if he laid on it while sleeping. So we opted to put the toy on a dresser where it could be near Owen while he slept. We then added saying 'night-night' to that toy in our nightly ritual, and that seemed to satisfy him. Maybe you can do something similar? Like, play 1 song during your wind down, and then have DS put the seahorse on his night stand or dresser for the night. You could even have him tuck it in under a wash cloth or something.
