Doesn't matter if it's just a fangame, and even worse so if you're using ripped content and distributing, since that would be the same as giving away copies of Silent Hill 2 (even if it's just partial of its content).
This looks quite neat, but I got no clue about how much of this is your own work. If you removed all ripped content, and then changed the names you'll be fine.
Would be nice to see a horror game on UDK, but not like this
I thought right away that using the name "Silent Hill" is going to land you in a lot of trouble and if you're trying to make a "sequel", fan-made or not, then you're using the IP (Intellectual Property) which is even worse.
You can change character/location names and minor details, using nothing _from_ Silent Hill except for the art style, and it will be a rip-off, which is kinda shameful but technically much less wrong.
Isn't that what he's doing though. Making it public. I feel for ya titobruni because there are quite a few games I would like to remake or extend such as Tomb Raider or Prey. Making a game as such, there are a lot of things that might come up against you and I definitely don't know what all may be. You are a real fan of Silent Hill as am I. So freaking scary and fun.
Every time I see someone on here try to remake a game or extend it or give it some sort of mix I never really know what to say because I don't know the limitations which is why I do my own stuff.
Still there is a chance you can get the attention of the actual creators. Take a chance and ask them first, send email, stating you want to do something such as what you are doing for yourself and it wont be public or commercial. If approved. Put your blood and sweat into your project. Make it awesome so that when finished you show the creators and there could be a chance they could say "We really like the idea and route you took to introduce Silent Hill 2.2"
We like the new levels and story, and we love that you kept the same vibe and feeling for the environment, but through in some new supporting characters and enemies. Chi Chiiing. lol.
Maybe a few exaggeration in there, but my own personal opinion is have a bigger goal for your projects. UDK is an awesome engine which gives you a lot of opportunities and it's kind of daunting to limit it's power because of the limitations of the project. So it might be best to do something that doesn't limit your skills and capabilities.
Okay I'm rambling but I think you get what I'm saying. Anyway I think what your doing is cool, but I just wish that you will have no road bumps along the way
and that you can get noticed for what could be a great idea. I'm saying this again because I am a Silent Hill fan.