Is it possible for one twin to deform another?

Yes. Even without a twin, a fetus can assume an abnormal position within the womb, or have arms/legs in distorted positions. These can produce transient deformations in any newborn. The presence of a twin within the same space can increase the risk of such deformations. Thankfully, positional distortions like these often improve with help after the babies are delivered.
Even though the. Uterus expands remarkably, it's a small place. I've seen twins with skeletal impressions on their skulls from their womb-mate siblings. This is not frequent, but occurs.