James killed his wife who was sick, and he mercy killed her but can't live with the grief of it?
No, not really and that's kinda the point. James killed Mary because he couldn't handle caring for her anymore. At the end of the day he didn't do it to put her out of her misery but out of desperation and frustration. It was ultimately a selfish act.
SH2 isn't primarily about grief. That's what Shattered Memories is about. It's about guilt. That's the idea behind almost every single element of it. It's why James is haunted by Pyramid Head, a monstrous executioner. It's why you keep killing female coded monsters. It's why there's so many references to hell and punishment.
Most importantly, it's what the game explores by contrasting James with Angela and Eddie. They present two extremes. Angela is by most objective standards the most innocent, she killed her abuser. But she's the one who feels the most guilty and that's what she ultimately succumbs to. On the other hand you got Eddie who murdered a person for practically no reason except for his own paranoia and victim complex. He is by most standards the most guilty out of the three but also the most in denial about his own guilt. It's why he seems to be the least affected by the towns magic and dies not to any of its creatures or traps but for picking a fight with another human.
James is right in the middle between those two and the one who has the potential to go either way. He did commit a murder for ultimately selfish reasons and he is consumed by guilt so the game is his trial. There are endings where he succumbs to his guilt like Angela, namely the In Water ending. There are endings where he gives into denial, like the Maria Ending, the Rebirth Ending or, new to the remake, the Bliss ending. And then there's the ending where James actually manages to face what he did and why he did it and finds absolution. So, the Leave and perhaps the new Stillness ending.
And that's the idea, you know. Those three people were called to Silent Hill because each one of them had taken a life. They're on trial and the forces behind the town take the souls of at least two of them. But James can still save his and, well, that's what the game is about.