Silent Hill 2, no question about it. IMO the best of ALL Slient Hills.
Silent Hill 2 really captured the essence of horror for me. Yes, the first one played with sound to create terror....the second one mastered it. The first game played with reality a bit...the second one went several steps further, creating unexpected metaphors, tying the shifts in reality to a cohesive storyline, etc. The main character is SO human that it's almost impossible not to identify with him....a rarity in games.
And it's a DAMNED good story (pun intended). Also one of the few games where the real payoff doesn't come until the ending! And one of THE most memorable endings in gaming...no exaggeration.
Silent Hill 3 by comparison is a sequel to the 1st game with no real sense of self. Yes it does continue the story of the first game (bypassing the second completely as well it should) and it does a good job for what it is, but it just doesn't have the emotional punch that the second game does. There's no real sense of identification with the main character, the story feels more like a game, the characters less real. It's just not nearly the game Silent Hill 2 is....and honestly MOST games are not nearly the game Silent Hill 2 is. It's easily in my top 10 games of all time.