Not Clive Barker apparently.

Exactly. (Undying: good)+(Jericho: Meh)= Clive Barker neither makes, nor breaks a game. And has sex up the butt.

First of all it is tough to make good horror. Movies and games tend to fail pretty miserably at generating a decent horror experience. One thing you touched that I think is accurate is the fact that repetition blunts the horror. Unfortunately (and this is especially true of games) the need to reach a certain running time almost necessitates repetition. It takes one hell of a creative mind to come up with a means of circumventing this problem.

Because establishing the amount of variety to fill out a game while still providing a consistent experience is really tough, I think an effective tactic in horror-themed games is to establish a familiarity with a particular theme or mechanic, and just as that mechanic starts becoming rote, change it in a manner that throws what you've previously learned out of whack. One decent example is actually in RE4, where at some point the zombies start responding to a headshot by busting out the Official Parasitic Arthropod Accessory Pack. It's unexpected and effective because it requires the player to adapt very quickly to a nasty surprise situation.

Another way of maintaining a decent horror experience is to keep the player aware of their own powerlessness as compared to the Enemy. You mentioned Clock Tower as an example. I can also think of the original Alone in the Dark, though that had its share of bog-standard battles as well (I can forgive it, after all it is super-old). This is a bit of a trick in a game, where the end result is generally expected to be some sort of victory by the player over the Enemy. If you make it too difficult to overcome obstacles, or make every challenge an instant-death scenario, the player is likely to just become frustrated with the game and forget about it.

Getting away from the gameplay and thinking of things from a more literary standpoint, illuminating the juxtaposition between the mundane and the horrifying aspects of a character's life is a pretty powerful tool. In the movie The Hunger, one the most terrible moments was when the young music student is killed to feed her teacher's desires. I think that's what The Darkness was trying to do with the scenes with the girlfriend.

I think horror games can be a lot more effective if they begin to limit gameplay to a few hours, as the repetition and grind can be cut out in favor of a tight presentation. With the introduction of Portal, and the seed of episodic gaming being planted (though with few successes thus far), I'm hoping that we'll begin to see more developers willing to release a 4 to 6 hour game for 25 dollars or so. I think a successful horror game could easily come out of that scheme.

Two gameplay elements off the top of my head: being able to skip the cutscenes if you want to, and an adequate, but not plentiful or unlimited, supply of ammunition.

I always think of the original AvP or Undying as great examples, along with SS2. Audio was definitely key in all of those. I agree with big on grinding. The tension completely goes out of the gameplay when it's something you've done a dozen times already (see the Big Daddy in Bioshock.)

Avoid over-explanation and giving away the motivation behind why things are happening in the characters' environment. If they don't know something, their need to know is insufficient.

That which can be explained can be understand and rationalized. Fear isn't rational.

These comments are on the spot. Or one of the spots. The horror genre has a few more peaks, just like in movies. Theres the other side, like Darkwatch, the Darkness, dead rising, Vampire: bloodlines and the like (though that did have the awesome hotel sequence, following the type of horror game mentions above). These other horror games, where you are a horror, need a similar atmosphere, but trade of some of the nerve racking (not tension), for a sort of visceral pay off. Eating peoples hearts, lawn mowing zombies, butchering a whole mess of your fellow vampires, beating a fellow enemy not by shooting them, but draining them dry. That stuff can be great horror too!

I know most people don't consider FEAR a great horror game but the one scene early on where you get on the ladder and turn around to see the girl standing above you is the only moment I can remember in any game that actually scared me.

Fear was just creepy with the ladder scene. not scary. stric9 have you played fatal frame2? If the little girl in fear scared you try fatal frame....with the lights off by yourself.

The klaxons in Silent Hill, and the gut wrench your stomach does when you hear them.

EDIT: Bah, beaten to it. I guess I'll just second it then.

I'd argue that good sound design can make or break a game. Sound is the thing that hits your brain at the lowest level, it's a straight shot into the depths of your mind. The sound of footsteps behind you when you can't see anything is far, far, far more horrifying than any monster a game can create.

The horror, for me, is always in the not knowing, especially in the anticipation. In VtM:B, the Ocean Hotel level scared the hell out of me because I didn't know what was coming. I didn't know if something was going to explode or a monster was going to come out of nowhere, that scared me. That "GOTCHA" moment of fear only lasts a moment, but trepidation lasts forever. Knowing isn't scary, not knowing is horrifying.

A lot of good points by other people here so far. It seems like most people find sound a important part of horror like I do. Some other points brought up like imbiginjapan's:

Another thing I often find in the horror game genre is that the person is thrown directly into the situation. Resident Evil starts in the house, Clock Tower started in the mansion. Silent Hill (I have only played 2 since I have been unable to find the others) is better by having you walk into town through a drab and fogged path then makes you fear the klaxons that will change everything you know to something strange. It is also important that the klaxons are never explained so you don't know why they cause this change or where the sound itself is coming from.

Movies that do horror right often have, or better yet start with, scenes that depict this normal life to the viewer. Things like life before the town burned down, or people going about their daily lives. Games seems to skip that step a lot so as to not boor people with that none main game action, but it is that normality that makes the change to horror so much more significant.

I do also like the idea of a short horror game, but I fear it would just give rise to a plethora of games all following the exact same steps, things, and actions since I see that so much in the current crop of casual games. The advantage of significant length games is that people have to put a lot more effort in since if it fails it probably means the end for that company. While if a short 6h game fails, then people just move on, try again, and tighten there belts a notch. This time spent generates gameplay styles, stories, and creatures that a short games does not have time to flush out.

And as a couple people have mentioned Fatal Frame I will have to consider getting it at some point.