Better than you'd think.
Though Silent Hill 4 may be different, no more flashlight for example, it still does Silent Hill justice, as well as horror survival games in general.
Silent Hill 4 relies on a very creepy atmosphere, as did all the previous Silent Hill games. However, in this Silent Hill, they make a big change, in that when you hear a scary noise, there's probably going to be a monster there.
Silent Hill 4 is essentially a puzzle game, with many puzzles to solve to continue on in the game. Figuring out what goes where, and what items to take with you is half of the fun, even if it can sometimes be a nuisance. There will be some items you'll never bother taking with you, and others you'll keep on hand at all times, because you'll never know when you need them.
Silent Hill 4, as is the case with all the Silent Hills before it, has a terrible, repeat, terrible combat system. It has been improved slightly, but you'll find very often that you won't attack what you want to attack, and the AI following you around acts just like AI. Very, very stupid AI.
However, for all it's combat faults, Silent hill makes up for it in scares. The first person view inside the room was an awesome choice for the game, and can provide some scares, even when not intended.
*SPOILERS*
At one point in the game, you're room becomes possesed. Seeing the room possesed has to be some of the creepiest things I've ever seen in all my gaming history, as well as any horror movie i've ever seen. Babies heads coming out of the walls, the TV flashing scary images, the eyehole on your door bleeding, and that helpless feeling you get knowing no one can save you but yourself.
*END SPOILERS*
Silent Hill 4 may be the least popular in the franchise, but if it was the first one you ever played, you'd be amazed because you wouldn't be expecting a bunch of throwbacks to previous games. You'd appreciate every scare for how it comes at you, which is precisely how the game should be played.