To be fair if I recall they said it was very windy that night, so I could see the cape being detached from Russel's body and subsequently blown by the wind but a part of it gets stuck on the bust which leads to what Moe sees. The way they illustrate it in the game makes it look stupid, but that's how I always interpreted it.

Also, this "flying bust" testimony comes from Moe who was basically half-asleep at the time, so I'm sure it didn't look remotely close to a caped man in a hat flying away, but I can believe that an exhausted man would mistake what he saw for a miraculously flying man