I've been tinkering with this and my major thoughts on the subject is that they decided to play up the surrealism a little too much, and were a little too quick in bringing up the otherworld. See, the trick to Silent Hill is that it was grounded enough in reality that when the surrealism kicked in it was more meaningful and creeped up on you, the monsters also genuinely felt like they just didn't belong in the earlier games and were creepy for that reason, compared to how the ones in later Silent Hill games look like fairly high budget FX, I guess you can say their attempt to look realistic made them less creepy.
Likewise the whole "personal nightmare" thing was a point of debate for a long time, with a lot of people theorizing about meanings. Spelling it out this clearly, especially seeing as the analogies are oftentimes "beat you over the head obvious" sort of ruins the mystique.
Unlike some horror fans, I'm not really done with Silent Hill as a franchise yet, but I admit I am growing tired of a lot of the failures. Oddly I think the problem is that we seem to switch between developers who all want to make the property their own while they work on it.... and that really doesn't work. Silent Hill works with a very specific style and formula and developers need to realize that this isn't their world, but someone else's that they are kind of a guest in and being allowed to use. The developers need to approach these games with the same kind of reverance and attention to detail and lore than the fans do, even if they don't directly take all the ideas from the fans.
While it's a minor spoiler, I think the problem is kind of summarized by the beginning sequence where you walk into the diner and deal with the fire/leak/otherworld transition which leads to you walking around something that looks like a steampunk arthouse prison rather than the portrayal we're used to, and involves chases with some "force" in a sequence that seems very much like an "Evil Dead" movie. Then we've got some kind of booby trapped water slide thing, and an endless staircase. My initial thoughts were that it was too much, too quick, and the style seemed a bit off. The waterslide for some reason made me think of an amusement park ride (or oddly, the old "Goonies" movie) where the apparently dangers were just FX and no real threat... and that was paticularly off.
That said I think this game and Homecoming are better than most reviewers let on, especially given the general drought of horror games. I mean right now all you have up against them is "Resident Evil", and maybe "Saw" even though it's dead. I think their biggest failing is being unable to live up to the high standards set by previous games in the series, and honestly I think a lot of that has to do with so many developers shuffling in and out, none of whom really want much more than the "Silent Hill" name and a basic framework to do their own thing.
I kind of have a wierd daydream about all the lead developers from a Silent Hill game not developed by Team Silent, driving along in seperate places where it's suddenly very foggy and winding up in the REAL Silent Hill (muhwahahaha) together, with the town itself intent on teaching them the error of their ways and how it's really done.
You know, maybe I'll actually write that as a "fanfic with a point" and hope the actual people I decide to use don't get slotted off at me.