"Is he always that nervous?"
"Oh, yeah. Poor bloke. Brilliant mind. He was fine while he was studyin' outta books but then he took a year off ter get some firsthand experience. . . . They say he met vampires in the Black Forest, and there was a nasty bit o' trouble with a hag –– never been the same since. Scared of the students, scared of his own subject now, where's me umbrella?"
(Harry Potter and the Sorcerer's Stone)
I would interpret it as a combination of the first two of your suggestions: in other words, the character is describing a short-lived but very serious troubling episode with a hag.
One might use the same word when describing, say, a loud argument between neighbors:
Those two got into a nasty spat a couple of weeks ago. I don't think they've spoken to each other since.