Parasite Eve 2 was a great game, PE1 I wouldn't count as survival horror at all, just a horror-themed RPG. The weapons customization thing in that game was really nice. 
Survival Crisis Z is a good survival horror game for a freeware game. The action is more arcade-like than a typical survival horror, but ammo tends to be short (especially in the beginning), dozens of zombies attack you at once, and your character has "fatigue" and "hunger" levels that when low will adversely effect your performance (hunger makes you run slower, fatigue makes the screen darker, and at high levels it starts to wave and fade in and out and pulse).
Would Clive Barker's undying count as survival horror? I guess you would, there are other FPS Survival horror games. Undying's got a lot of variety to it's levels and areas and enemies and your methods of killing them, including the best melee weapon in any FPS: The Scythe of the Celts.
The enemies are suitably horrific and frightening for the most part, except for the pirates and cavemen later in the game... ¬_¬ Well, the pirates at least make sense in the story. ^^; Plus, they have good one-liners in combat that makes the game feel smarter than it really is, like noticing when you stop shooting and reload or try and run away.
As I was walking down the stair,
I met a man who wasn't there.
He wasn't there again today.
I wish, I wish he'd go away.