I think it's the latter with Dead Space.
It just doesn't feel like a horror game.
I mean, the game is supposed to be cast in space, where no one can hear you scream, on a derelict space vessal that's falling apart and full of dead but still hungry and with sharp limbs things.
It's got that. It's also got an item shop.
That, right there, shoot the horror element for critical damage. You can't have survival horror if you have a place to go back to to buy a health kit, or some ammo, or another weapon upgrade.
As well, it lacks the element of "alone" that the genre practically needs. You are never out of touch with a living human for long. The holo screen pops up every five minutes to remind you of something.
Then, there's the character himself. The guy is supposed to be an engineer. Not a space marine. Not another fucking Master Chief, shove a grenade down your alien throat and laugh at the bloodworks, kind of guy. Yet, in a scenario that is unprecedented and completely FUBAR, the guy non-nonchalantly runs around the ship, being his CO's bitch, fixing random bits of the ship.
Which again, I feel, ruins the horror bit. Oh no, asteroids? Quickly, go fix the automated defenses!
Oh no, giant nasty slug thing? Go mix up some anti giant nasty slug thing poison that's a good boy.
Hell, the way Issac acts turned into a running joke for my friends and me. Every time an enemy would appear, I'd make a military crack. Every time something screamed, I'd flick my gun and go "hmph." And I stomped every corpse, just because it was so out of place. It had everyone present in tears.
I did play the game alone, on hardest settings, at night, with good headphones. All I got was a faint gag reflex when I saw the shit growing on the walls. That's all.
Not scary at all, Dead Space.
Still fun, tho'.