Can monsters hallucinate?

No, monsters do not hallucinate. A hit by a potion of hallucination has no effect.

A potion of confusion would help a bit, but not much. The hit cub might attack its brethen (if it randomly decides to go in that direction), but only the bite would have an effect, not the cold breath.

Winter wolf cubs' bite and breath do the same damage. If you elect to fight, maneuver so as to fight only one at a time: you don't want to be bitten by one while the others are freezing you at a distance. They have no magic resistance, so they should go down to a couple of force bolts (be sure not to hit any shopkeeper or their wares). Thrown daggers can help too. Try to keep an escape path without too many straight lines.

If you have a good piece of body armor, it may be more effective to wear it and forego spellcasting and fight with your daggers instead.

Remember that you can make the monsters flee by writing on the floor. But since they have a ranged attack, they'll soon be breathing at you, so do this in a place where running away causes them to turn a corner.

If you still have your pet, it should make short work of the cubs. You only need to get them close, get a closed door between you and them, and wait.

If the shopkeeper left his shop, this is likely to be a bones level where the previous player did something nasty. Be on your guard.