Is it a "survival horror" when you're carrying more than 20 health packs at any given time?
It features cute main characters. It has a slowly unfolding story with some really sick touches (that's a good thing!). Sound is eerie and fits the atmosphere of the game.
My main problem is with the gameplay. Fatal Frame 2 features a lot of backtracking and you can easily get lost because even though the graphics are similar to Resident Evil 4 (both games came out around the same time), they are a lot more bland and less colorful. And while this in itself is by no means a bad thing, most of the environments in the game look the same. There is almost no variety.
Another issue is the slow moving speed of the protagonist. Running speed in this game is slower than the average sneaking speed in various other games. It really is that slow.
The beginning of the game offers some cool spooky moments but unfortunately FF2-s bag of tricks is empty after the first few chapters.
Fatal Frame 2 features quite a few puzzles, but they are, once again, covered in bad design choices. For example, you might find a puzzle, but you can't start to solve it before you haven't been to some other room and found a hint about it. And once again that's where a whole lot of backtracking comes in.
You are also encouraged to go through the same rooms over and over again because even though there isn't a living soul in the village, somehow items still keep appearing even after you've walked through the same areas a half a dozen times.
This is not where the bad game design choices end, however.
Near the end of the game the protagonist must walk for about 7 minutes through some very long corridors. At the end of that there is a boss fight. And the boss has a one-hit-kill attack. Brilliant!
These issues aside, the cute protagonists and spooky looking cut scenes are probably the main reasons to keep playing Fatal Frame 2: Crimson Butterfly till the end.