There's Lovecraft's Kadath, but I'm not sure if that counts as horror. It's dream madness in a fantastic setting. Kadath seems to divide people strongly into those who think it's scary and those who think it's boring.
Hm. Stephen King wrote "The Eyes of the Dragon", but that's a full novel.
For short stories, you might point your friend at "The Year's Best Fantasy and Horror" - it isn't all horror in fantasy settings, but it is all short form, and there are so many years of it that I'll be surprised if you don't find some useful examples.
He had 3 weird fantasy settings that were fantasy-horror basically: Zothique (in the far, far, future), Averoigne, sort of a medieval France, and Hyperborea, pre-history.
I not come up with the name of it, but there was a recent collection of Mythos short stories I read last year...one of which featured Conan. And if you search, you'll see that Conan & Cthulhu have a bit of a history...
There are Lankhmar stories that veer towards horror, at least involving undead.
A correction: while there are indeed Mythos-tinged Conan stories, what I was thinking of was not one.
What I was thinking of was the collection of Brian Lumley's Mythos tales, Haggopian and Other Stories, and particularly, the story "Curse of the Golden Guardians".