When it comes to Konami and even Capcom, I don't think they know their own games any longer. It's sad. It's as if they don't care for their canon aspects, because they've ended up feeling so outdated.
For example, Capcom is holding our feet to the fire in regards to a remake of CV. They're insisting on calling it a spin off.
Now, that's rather dumb because CV is the game where Chris flew to Antarctica to save Claire, and you learn Wesker didn't die in the lab. So what's Capcom smoking in Japan? Meth? Really strong stuff, whatever it is.
Anyway, I always assumed the real ending in the second game was that James loses Mary, then drives his car backwards into the lake, to commit suicide by drowning. However, I personally prefer the happiest ending called 'Leave' where he just departs from Silent Hill, with Laura. But I then found out the bad ending was perhaps supposed to be the genuine ending.
Remember the superintendent, Frank Sunderland? He said his son and daughter-in-law never came back from Silent Hill. So, Jesus. Konami is like Capcom these days.
Sounds like Ito was just messing around; not entirely out of character for him.
Fan: What's under Pyramid Head's helmet?
Ito: A head.
I personally consider "in water" to be canon and the (relative) happy ending.
In here is a tragedy, art thou player or audience?
Be as it may, the end doth remain:
all go on only toward death.
...
There is nothing which cannot become a puppet of fate
or an onlooker, peering into the cage.