The game still is a psychological horror, and the horrors within do reflect someone.. Alessa, whose psychic powers and being the incubator for a dark god have helped a little hell on Earth manifest physically. Since the god is still able to be partially revived in Silent Hill 3, albeit in a deadened and weakened state, it also implies that Alessa's projections and the God's mere existence have turned Silent Hill into a cursed land that just so happens to reflect those that enter it in later entries.
In the last room before the final boss (the Gillespie house upstairs hallway), you can see a painting in the stairwell depicting the same kind of mutilated, crucified body that you've encountered at different points across the Otherworld. Are all those bodies you find in the Otherworld actual human victims, luckless inhabitants of the town mangled beyond recognition and put on display like grotesque sculptures, or are they more manifestations of Alessa's fears, in this case artwork hanging in her home that disturbed and upset her? Tellingly, no corpse you encounter ever has a recognizable face, and therefore no specific identity can be determined; they're literally just freaky decorations, the same way the blood splashed all over the place rarely seems to have been spilled by any living being.
The Puppet Doctors and Nurses are the most human-looking monsters in town. Other than their bad postures and the wriggling parasites in their back they seem almost normal. Then you fight Cybil when she gets possessed by a demon parasite that can be removed by hitting her with a bottle of aglaophotis, and the monster emerges from the bloody patch on her back...the same location where the bulges on the Puppet Nurses and Doctors are. Harry may have been killing ordinary people that could have been saved.
In one of the school's second floor bathrooms, you randomly hear a little girl crying, heavily implied to be Alessa. This would be bad enough on its own, since we know she was bullied heavily for her relationship with the cult...but it's also the boy's bathroom. What was she doing in that one?
Hiding from other girls who were bullying her, maybe. It's not like that one room kids are told not to enter would be the first place a bunch of 2nd-graders might think to check.
