Since I posted about Cryostasis, I figured I'd let you in on another horror title developed by a small company; the Penumbra series.
All three are great games (the third is an expansion to the second), and you can find them for reasonable prices for a smaller company. On GamersGate, you can get Penumbra: Overture for $19.99, Penumbra: Black Plague for $12.99, and Penumbra: Requiem for $9.99. I was fortunate enough to find Black Plague at GameStop for $5.40, though it feels like I cheated the game makers, so I'll probably end up getting it again, along with the other three, at GamersGate (when I have the money, of course :) ).

I've known Penumbra since it's tech demo was released - and it stunned me with it's beautiful graphics, use of physics and relistic way of controlling the game (I simply love how interaction with environment is done), as well as I loved the fact there were NO enemies most of the time, so you were always afraid of 'what might be around the corner'... But, first sold Penumbra didn't appeal to me that much - it seemed to completely remove the last part by putting enemies MUCH more frequently, which was a mistake, game would be MUCH more scarier even if you didn't meet a single enemy the whole time. And since I didn't finish the first one, in fact I didn't even get very far, I didn't play the others... Might be worth another try though...

the tech demo was scary, but I was slightly disappointed to not find any monsters. :(

Scary thing is this, no monsters. :D

You'd like the second one much more, then. You can't really fight back in Black Plague (save for one incident, which they'll clue you in on when you get there), so it's much more tense. Plus, in this one, you start to hallucinate and see all this scary shit.
The demo ends right before you encounter any. XD
EDIT: Demo of first and second game, sorry.

Penumbra is a very atmospheric game, although the special effects and 3D props are a little amateurish. The interaction mechanics are interesting if somewhat clunky at times. The understated implied background story is implemented quite well, something that some horror games like Resident Evil could use.
I've only played the demo, but I'll definitely pick it up eventually. Given a bigger budget while maintaining the original vision and theme of this series, I can see much potential.
Also for those of you that have Unreal Tournament 2004, this mod Hollow Moon offers similar gameplay emphasizing exploration and atmosphere over combat. The difference being that Hollow Moon is set in the silence of space.
EDIT: Typo on the URL.

The quality goes WAY up from first to second. A clever secondary character is introduced that adds some light-hearted and morbid comic relief. Graphics are a huge improvement, too. They add a sort of nightmare world that doesn't feel tacked on, there are some ingenious puzzles added to the mix.

I also own the first two episodes and can recommend them. I agree that fighting the first one can get tedious, but I am glad that after a while it tends to get very easy. That's not very good for the atmosphere, but makes it a lot less anoying. But I've also found that the second one is overall a better game. I haven't even finished it, yet, but I am pretty far into it. As I've read in a test and also experienced they could have done a lot more with the hallucination, but apart from that it's pretty good. There aren't many games of that kind, so they are surely worth their money :)
I haven't played the last episode, but I've heard that it's not really worth it, unless you really want a bit more of Penumbra. As far as I know it's basically only a series of puzzles and not much else. It's history was kind of strange, anyway. At first the series was laid out as a trilogy. Then, surprisingly, they announced the second one, Black Plague, to be the final one. And then, out of nowhere, they released the third one.
Anyway, like I said I'll make sure to finish Black Plague, but I am not interested in the third episode. Rather I am looking forward to what the developers, Frictional Games, have up their sleeve for their next game :)

Yeah, they say they're working on a new horror series that they thought of when they were working on Penumbra but wouldn't work in that series.
Also, I think the reason for the weird trilogy mix-up was a falling-out with the publisher of the first game. They mention it briefly somewhere on their site, but don't go into specifics.

The more horrors the better! I'm just finishing the last chapter of Dead Space, and I'm in need of new thrills ;)

You can try Clive Barker's Undying if you didn't. One of the best horror games in history for me. :)

I can't help myself, but I've really enjoyed the game. Sure, it had many flaws, but... I just couldn't get myself from playing it. And when I was getting bored of it or it became a bit repetitive... I've just changed character! :D
Church and Katana power is still my favourite thought, slice your way trough the game is waaaay cool

Just checked the Steam listing, and Jericho is 9.99 from there. I'd say that's pretty cheap. :)

I played both the PC and PS3 demos of Jericho which were essentially identical except for performance differences. But despite the bad reviews, I enjoyed the demo quite a bit. Full price is a little too much to ask for what I expect out of that title, but I can definitely see having some fun at a lower price point.
I think a lot of people were expecting more of a "horror" experience since it had Clive Barker's name on it. But since I'm not too familiar with Clive Barker's works, I just saw Jericho as an action shooter with horror elements. It probably isn't great by any means, but the simplistic oldschool style shooting seems refreshing in this age of modern realistic tactical shooters. Similar to my experience with Painkiller.