Polygon Man. Everyone you defeated in Story Mode then became his minions, and now he makes you have to fight them again, only now, they are glowing purple with yellow eyes. And if you fail to beat him, he turns you into one of his own as well. Made especially disturbing if you're playing as someone cute like PaRappa, Sackboy, or Spike.
Heck, the boss battle in general: stuck in a purple battle arena with Polygon Man taunting you as you fight your purple mutated rivals.
Isaac Clarke's losing animation. Most of the other characters just look angry, upset or disappointed when they lose... Isaac, on the other hand, desperately claws at the ground as he gets dragged into an abyss, feet-first, by who knows what. Then his loss animation on the results screen shows that all that's left of him is his helmet.
When Little Sister first meets Sackboy in Sackboy's Story Mode. "Let's unzip him and see what's inside!" *shiver* The rest of the cutscene, however, is a Crowning Moment of Heartwarming, but still manages to be a tad bit creepy too.
Even though Heihachi's Lvl. 3 finisher is pretty ridiculous, PaRappa and Spike's terrified faces as they are strapped to the rocket is pretty unsettling, to say the least.
If you listen closely to the background noise in the Dojo with the music off, you can hear some very graphic screaming (Men and Women) beside the MAWLR's blasts. Considering how lighthearted Parappa's world is, this can be quite chilling. You can also spot the machine through the window and feel its footsteps being fed through the DualShock 3 before the scene-change, meaning this has been happening all through Chop Chop Master Onion's rather fun lesson.
One of Radec's loss poses is him clutching at a wound with his gun aimed at someone offscreen. Last time he took this pose, he killed himself.