Really great demo. The moment the door slammed in her face and I heard the scream I thought "David Lynch". Then I looked at the pause screen and read "David Lynch" and thought "Ooh". Love the combination of old school graphics and modern controls plus a few fixed camera angles thrown in for good measure. Really creepy vibe, especially at the end. I think that some atmospheric effects would really tie everything together. A little fog on the ground would really fill in the open space. Really looking forward the finished product.
EDIT: I was replaying the demo I think that as long as the D-pad is unoccupied, mapping tank controls to it would be extremely helpful during sections with fixed cam angles. Not sure if that would be a big pain to program or maybe you even already have plans for the D-pad. But could save you some criticism I have seen in reviews for other games that have fixed camera angles but no tank controls. Can be frustrating getting turned around by accident when a camera angle changes. Cheers and thanks for reading this long comment.