Well, looks like I'm going to finally have to add another game to the short list of media that has managed to actually scare me. It's sick on so many levels, and the graphics really suck you in. The sound design is great, especially if you have surround sound (which will save your life more than once). They nailed the elements of horror that many games screw up - there aren't enemies around every corner, hiding in every closet. But in the back of your mind you're sure there will be. The atmosphere makes the game, there's no HUD and even in the inventory screen you are not safe. I won't ruin the story but it's basically The Thing in space.

http://www.gametrailers.com/player/41718.html

In case you're wondering the other games that have managed to spook me are:
System Shock 2, BY FAR the worst (which means best)
S.T.A.L.K.E.R. with the Oblivion Lost mod
Aliens vs. Predator 2 Marine campaign

Ironically these titles are mainly action games, survival-horror games just seem to try too hard and end up seeming more ridiculous than frightening. For example, I can shoot better than the supposedly elite S.T.A.R.S. from Resident Evil in real life.

That is a helluva game. Guess who's going to spend half his life playing it...?