WARNING: SPOILERS AHEAD
My biggest letdown with Alan Wake was how it failed to make me feel horror, even at a superficial, "boo"-level. The game seemed to want to present a mood of oppression and despair, using a blurred line between reality and dream to induce sensations of dread and horror; and though the depiction of light and dark via technology was impressive, too many other things worked against the mood it aimed for.
At game start, Alan runs over a homeless man and confronts shadow-covered people. I heard creepy music and gathered from the narration that the horror had begun, but it all just felt... normal. Normality is defined at the start of the game. If it begins with running people over and shooting shadow zombies, then this becomes the norm, and you have to work much harder to make a situation seem horrific.
After the starting sequence, the game has you arrive town on a ferry, giving you an opportunity to meet townspeople and settle into the world, but the chance for defining normal had already passed, and the damage was done. I wondered if the opening sequence was a later addition to the game, as someone's idea of "getting to the action" sooner, to ill effect.
Dreams vs. Blurred Reality
Another problem was asserting that everything could be a dream. The game pulls out the dream card at game start, and once you open this door, it's difficult to gather which of your actions have consequence. Consequence is necessary for weight, and weight necessary for horror. It might have been better to begin the game set firmly in reality and add elements over time that twist it without ever bringing up the consequence-shattering word, "dream."
The game also suffers from uninteresting characters. The only memorable characteristic of Alan's wife is being afraid of the dark, and Alan, in the limited interactions with his wife, comes across a jerk, and has almost nothing redeeming presented up front to investment me in his quest. Barry, Alan's agent, was loud-mouthed, fast-talking Joe Pesci wannabe that seemed to exist only as a bad comedic device or a way to drive mechanical story events. A sidekick that challenged Alan emotionally (e.g., challenging Wake's relationship with his now-missing wife) would have been preferable, along with humor that still respected the context of a horrifying scenario.
A point I'm less sure about is the lack of graphic content. Nothing is visually unnerving. Covering enemies in shadow with computer-tweaked voices never came across as menacing (even normal voices might have come across as having more grit). It might have only seemed lacking because fear was otherwise missing, but it was a noticeable absence to me.
Finally, the game baffled me when it presented prompts to read collected manuscript pages containing spoilers about my adventure. It's hard to imagine the logic that went behind this decision. Was it to reinforce the idea that your experience was being written? It seems hard to imagine a good reason for reducing the story's emotional punch.