Horror games really need to maximize the Fight or Flight response. It shouldn't matter if you can fight back, but if you don't feel you are always in mortal danger, no amount of atmosphere is going to work. Running away needs to be just as important an option as fighting or it just won't work. When this is achieved, the time spent agonizing over decisions becomes the bread and butter, because that can lead to panic. When this becomes commonplace, and the atmosphere supports it, boom. Horror. If Demon's Souls could be modified into a horror game, I'd fully support it.
The problem is true horror and gaming don't go hand in hand, really, despite the medium on the surface being pretty good for it. There are plenty of gamers like Nama who play games as escapism, and trying to fulfill that and still have the game be actually scary... doesn't work. Sometimes you can't fight the extradimensional creatures, true! But doesn't work for the goals gaming generally sets for itself.
Not being able to fight back is pretty freaking scary, and being able to fight back and still fighting a losing battle is far scarier. (Well depends on what you prefer: Terror or Doom). But again, both don't work for gaming because people will always want to win, or at least kick some ass. Game Theory 101, really. People aren't gonna have fun when the likely outcome is death (Demon's Souls notwithstanding, because... you can still win). But then again, it's not a problem to make a game that isn't for those people, you just have to be okay with them not liking it.
Offhand, this is kinda why slow-moving zombies are awesome. No matter how dumb and easily killed they are, there are still a million more, they are out there, and eventually, no matter what you do, you will slip up and one will get you. But when oh when will that be? It's just... hard to slip into this mindset from the outside though. Fast moving zombies are boring to me because they're generally handled no different than slasher movies. Terror vs. Doom again. Terror is you shit your pants and then you die. Doom is pervasive, degenerating and generally leads to you killing other people out of paranoia, then you die, possibly from a self-inflicted gunshot wound.