Sheep appear in Croc: Legend of the Gobbos as part of the Crystal Door Challenge sometimes called the Popping Game of the level Shoutin' Lava Lava Lava on Forest Island. Croc has to 'pop' as many sheep as possible by jumping on buttons on a switch corresponding to the hole in which several sheep pop out to get the sixth Gobbo. See the Popping Game page for more details.
Sheep are also depicted on the level select menu of the same level and on the level And so the Adventure Returns.