Forgive me if this isn't new info, but a quick google only shows a recent mention of this on Reddit and not much elsewhere.
Something else Masahiro Ito tweeted last month that I'll include here.
Silent Hill 3 was supposed to be an arcade spin off/a rail shooter, not a direct sequel to SH1. Was a terrible plan. The sales of SH2 was really not good start. So I guess it was one of the causes of that. Also that plan wasted much time & some budgets of SH3. It wasn't SH:Arcade.
When I was told that plan, I was really dumbfounded. Because I was one of core members of that team. I'm really glad that plan was cancelled.
I can't tell you the details of that plan, sorry.
Something else Masahiro Ito tweeted last month that I'll include here.
At least the sales of Silent Hill 2 was really not good start in Japan. It was often insulted on the Internet because it was not a legitimate sequel to the previous one and its direction of creature design was really different from the previous Silent Hill's.
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