I’m not aware of any demons less than IV that can reliably shape change. And not all IV’s can. I gotta tell you there are some seriously ugly ass giant demon monster guys out there that would probably love to be able to change form–but they can’t.
A few 3’s can temporarily do it, in the Abyss, but they generally can’t hold it for long (as per Boggy’s and my’s discussion with Tom early on).
Now that being said, if a demon can do magic, and there are a few threes that can, they could cast an illusion.
In fact, this is standard operating procedure for the Succubae and Incubae, most of them are around level 3. They most certainly can appear to be someone/something else, subject to the victim’s desires. Now this is not so much spell casting as innate ability and is related to their ability to charm/mesmerize and cause lust in their victims/targets.
Someone who is immune to the *bus’ charms would see them as they are, but the victims tend to see them as someone/thing highly desirable, at least if the Sucubbus/Incubus wants them to/is trying.