I'm not going to get on you about the specific character flaws (height, age and hair length), because those are problems that you expect from low budget films - perfect casting is very hard on a budget, and you can't really expect people that you don't pay (or if you do, you pay very little) to do stuff like cut their hair into a different style or anything like that.
I also appreciate the fact that you had to cut down a fairly complex and long story into a 17 minute short, so I can somewhat understand the use of a non-linear narrative. Again, that's another problem with independent films, or at least short films, and isn't something I'll hold against you. However, the narrative could have still done with a lot of work - instead of dropping the audience right into the middle of the story and giving a brief overview of what happened, you really could have done with setting it up properly. Again though, with this specific source material, that's another problem - finding deserted cities is a hard task, and the vast majority of the story in the game takes place in that kind of location. Still though, you've left a tad too many questions. I understand how hard it is to do though, even the people that made the feature length film had to change a lot of the story to make it - so much that they even made new characters to replace the old ones (yet kept essentially a crud version of the story from Silent Hill 1).
The acting could have done with some work. But again, that's a problem with the casting, which is a problem with the budget and restrictions of independent production.
The audio could have definitely been improved during certain sections, and the shot choices could have been worked on too. Seeing as this is a condensed version of the story from SH2, a very cinematic game in it's own right, you probably could have done with remaking certain parts shot for shot - for example, during the time when James is talking to Maria through the bars (
http://youtu.be/_JyfuWT9EiA). See, the whole thing about Silent Hill 2 is that it's constantly questioning James' understanding and leaving him constantly confused and wondering whether what he's seeing is real or not. Everything has its place in that game (even the design of the monsters plays a part in understanding James' subconscious), and the main idea of that scene was to see the transformation of the woman's personality shifting between the sweet side of Mary and the sexual side of Maria. The main lines are "I am [Maria] - if you want me to be", "I'm not your Mary", and "It doesn't matter who I am, I'm here for you". Each of those is James trying to -
SPOILERS-SPOILERS-SPOILERS-SPOILERS-SPOILERS
- reason his own thoughts about his wife during her dying days before the story. It's later revealed that he killed his wife (I'm not sure whether that was dependent on the ending you get or not), and each of those lines in that conversation is very important to understand his own perspective. On the one hand, he remembered the side of his wife that wanted to please him ("I am - if you want me to be"), but since she became ill she had also changed into something that he didn't love anymore ("I'm not your Mary"). He was feeling guilty over the fact he didn't love her anymore ("It doesn't matter who I am, I'm here for you"), but ultimately decides that he can't live constantly looking after someone he has grown to hate and kill her. The entirety of Silent Hill 2 is him feeling guilty over that, essentially, with Pyramid Head being a personification (?) of his guilt and the belief that he should be punished for his actions.
Now, that's why this game doesn't cut down well into a single short. Without the knowledge that Silent Hill 2 is in fact much more than it's presented to be, the cutscenes come off as a tad too cheesy and out of place. You say you're working on another Silent Hill short? Well this one seemed to be a self-contained story, so I'll assume it's unrelated (the teaser was a car crash, so I'm assuming it's Silent Hill 1 that you're basing it on this time?), but really with a series that's so heavily reliant on a strong narrative I think a series of shorts would be better, whereas condensing it all into a short makes things feel a bit too rushed.
That's enough ranting from me (I love Silent Hill - can you tell?), and in spite of all of that I actually quite liked your short! It just had a couple problems with audio and pacing (and a lot of the scenes were a way too dark), but overall it was quite nice. I've seen game-to-short-film adaptations done pretty damn terribly before, but this wasn't half-bad!
Really, choosing the game with the deepest narrative for the first short was probably your main problem - Silent Hill 1 (which I think is your next) would be much more appropriate for the length of time, being a much shorter game that doesn't rely too heavily on a strong narrative (I even remember being left wondering what the hell just happened when I first played through it), but more on character interaction. As long as you nail that (Harry Mason, Cybil Bennett and Dahlia Gillespie, specifically, if you choose to keep those characters), I think it'll turn out well! The only problem I could see with that is people being left confused unless things are explained, and Silent Hill 3 is too... extensive of a sequel to really be fitting into a short, again. Then again, you could be basing it entirely on the much more self-contained remake Silent Hill: Shattered Memories and I've been completely wrong, who knows!
Good luck with your future shorts, I'll definitely be keeping an eye on them!
Edit:
Oh and nice job on sorting out the audio issues on that specific scene I mentioned a few days ago, it's just the other areas that need solving now (though that'd be the setup your using as opposed to an editing problem).