What made me love the series (and especially parts 1-3) was that the game always gave me a sense of isolation, a sense of doubt and confusion as to what was real and what wasn't, and a sense of dread of being chased by monsters in poorly lit areas.
I just finished my first playthrough of Shattered Memories (I had to give the Wii back, so I'll borrow it again to replay the game) and I have to say it's better than I expected and as a game it's pretty good but not amazingly so.
It still retains the the isolation factor and your still not quite sure what is real and what isn't, so it captures the feeling of a Silent Hill game in that regard (sorry shidoshi!). But there's not much dread or fear while I played the game, mainly because of the monsters appearing only in the ice world, and you only have to out run them to find the exit. The lack of inventory management and the infinite continues means it's only a matter of time until you clear those sections. You can also save at any time.
I always found the puzzles to be overly simple and easy and the lack of interior maps understandable seeing as how you never spend much time in any one place.
I liked the story, characters and dialog and the game at least partially succeeds in capturing the SH feel, so I can say it was at least an enjoyable 8 hours or so. But it has nothing to match the beginning of SH1 (the nightmare), the hotel and prison in SH2, the otherworld of SH3 or even your house in Homecoming.
In terms of where I'd rank it among the other SH games (my current ranking is SH3->SH1->SH2->SHO->SHH->SH4) I'd say that's a tough one. It's definitely behind SH1-3, but while it's definitely a more even game than Homecoming, the best bits in Homecoming were better than anything in SM (and the worst parts worse), and it's a more original game than Origins but that game was more intense, and it doesn't have the repetition and clunky controls of SH4, so I'd say somewhere among those 4 games.
I like the minimalistic style of the game, and I'm OK with no combat, although I wish it weren't separated and confined to the ice world. I also wish it had more original locations with more of a backstory behind them.
Whether you're a diehard SH fan or have never played one before, I think this game is worth playing for its original take on the genre, but I think if Climax makes another SH game, they should try to make it more fleshed out.