My friend rescued a 10 year old pony that was the spookiest thing on 4 legs. He would bolt if HE farted. She has now had him 1 1/2 years and he is SOOOOO much better. The biggest thing for him was TIME. He needed to have some down time and then just be worked with slowly.
For Paco, lunging (the Clinton Anderson lunging for respect) made him worse as it was like my friend was the predator after him. He would do it but he would never relax with it. She has followed a lot of the ideas in Mark Rashids books (get those if you can through the library).
I agree with taking him for lots of walks. My riding instructor said to try to ignore the spooks and YOU keep moving as if nothing happened----after all YOU are not scared and whatever it was isn't going to eat you. If you react big it just reinforces to the horse that it WAS something worth worrying about.