The whole thing looks like it is being run through a very poor emulator or something. That water bit near the end there is unbelievably bad.
I actually sat down with the PS2 version again last night on my CRT and, man, does the atmosphere hold up. Horror gaming on a CRT is the only way to go. When you use the original hardware (both screen and system) the game was designed for the effect is quite impressive.
I actually loaded up my PC copies of SH2 and 3 as well (all those discs >_<). SH2 really is not a great port, just as I remembered. So many missing details throughout and I made the mistake of viewing it on my PC monitor (an LCD). I would go so far as to say that Silent Hill 2 is not compatible with LCD displays. It simply doesn't work. The art direction clashes directly with the LCD backlight. Only a high-end plasma or an LCD with high quality LED local dimming could really handle it, I'd argue. The atmosphere vanishes.
I can only imagine stepping down to the awful HD Collection version where you combine painful glitches with this problem. The atmosphere of the game would be completely destroyed.
Seriously, though, if you want to replay it and remember why it made such an impact back in 2001 go find a good CRT, a PS2, and a copy of the game. Turn out the lights and turn down the brightness of the TV a bit and you'll be transported to another world.
Sad that it's okay to just ship a product that doesn't work as intended simply because you can fix it later is really sad.
Honestly, I don't have any faith that they will be able to "fix" this collection. It's pretty clear that the programmers over at HiJinx simply couldn't handle this project. Konami should rush BluePoint in to rescue this game, though it's probably way way too late for that. They fucked up and there's simply no way they can fix it.