My first reaction to this is no, it is not the same as "he looks happy" or "it sounds good". "looks" and "sounds" are acting as linking verbs. I believe the "fascinated" is more like a reduced adjective clause (we, who were fascinated) that might sometimes be placed at the beginning of a sentence: "Fascinated, we watched..." In fact, I wonder if there should be commas after the "watched" to mark it as such.
I'd love someone else to comment on my musings!
Student or Learner