I read a pretty lengthy discussion on that. No one knows for sure. Could be a Photoshop job, could be real. If it's deformed that much, who's the say that an eye wouldn't be huge and have no lids? Apparently the breed and color makes it likely that it's severely inbred. Of course, cat eyes are usually white or blue when born.
FWIW, the Yahoo article says the owner is in Oregon.