The most egregious example, of course, would be the Meat Circus level. Mix-and-Match Critters coming out of meat grinders, freaky ghost-things appearing on the walls and wailing Raz's name, a race against rising water which, if you get anywhere near it, drags you in, Adult Fear galore in the form of two character's crippling Parental Issues, and, as a Final Boss, a giant, evil, Frankensteinian abomination that comes out of a meat grinder after the already-upsetting manifestations of said Parental Issues get thrown in.
Holy crap, the Butcher. Even pre-meat grinding, that creature was hair-raising...
The Butcher is scary enough, but when he hits the ground with his axe, look at the ground, it's bleeding. It doesn't help that he sees you as a slab of meat if you use Clairvoyance.
The "secret room" in Milla's mind. Her backstory, on top of being a colossal Tearjerker, is Adult Fear to an absolutely nightmarish level, and that terrible, terrible place is the representation of it.
Listen to the background music in Milla's "Dance Rave" mindscape. Eventually, you'll realize that what sounds like laughing...is crying. The music is trying to drown it out.
The two peppy "cheerleader" campers casually discussing their various suicide attempts.
The entire ascent to Dr. Loboto's office, what with the kamikaze rats, gloomy atmosphere, and Sheegor constantly peeking out from corners and staring at you.
If you look at the sky near the top of the Asylum, you see some Nightmare Faces in the clouds.
Inexplicable is this example, as it takes place in the real world. Later in the game when talking to the suicidal duo (who like to talk about how powerful they will be after they die, creepy in itself) they'll comment on how beautiful the sun is. If you go to "visual mode" and turn the screen to look up at the sun; you'll see it looks like a human skull. Gah. There's no reason for this.
Some of the "memory vaults" in the game, found while traversing the mental landscapes are very disturbing.
The entire game runs on Nightmare Fuel, quite literally in a number of places. Every in-brain level is, in spirit if not in body, a Womb Level. Brains are yanked from children's heads by a strait-jacketed dentist with a metal claw and a shower cap. It gets so traumatic that they hang a lampshade on it in the last level—if you ask for advice, Raz will calmly sum up the rabbit enemies as "hellish nightmare bunnies spawning from meat grinders", and Cruller will respond with "Well, at this point you might as well just whack 'em", equally unruffled.
The sobbing of the Emotional Baggage can be disturbing, especially if said baggage is off-screen, and it takes a while to reach it, with the sobbing in the background all the while...
If you listen very carefully, the crying in every mind matches the person whose mind it is. Yes, you will hear Razputin crying.
The strange pieces of meat in the Brain Tumbler Experiment level that start to quiver and give off green "gas" when you punch them can be deeply unsettling.
While it's one of the funniest levels in the game, The Milkman Conspiracy has its dark underbelly. It's not just the falsely bright and physics-defying overworld wearing on the nerves, the hinge-jawed watchers, sword-swallowing hedge trimmers, and getting pulled not once, but twice into a nightmare world to fight with dark, gas-masked figures that vomit chunks of their former victims, then turn to glass and shatter. While silly at first, the paranoia permeating the level eventually warps the player's thoughts just a little bit towards Boyd's mindset. When you start looking over your shoulder for walking mailboxes, it's a good idea to turn off the console and have a little lie-down.
You know what else is scary about that level? A GIRL SCOUT EXPLODES A SUICIDE BOMB. Seriously. She's only a thought, and is evil, but still...
That this is how Boyd sees a regular neighborhood.
Use Telekinesis on a girl scout and she'll say something to the effect of, "Put me down or I'll scream for the police!". And considering that this is Boyd's actual mind, which would include memories, it is possible that he actually heard that before.
Oh yeah, and they're some of the few human NPCs that your Pyrokinesis will actually ignite.
Which gets even better/worse when you realize that Boyd's particular "last straw" was burning down the mall that fired him with makeshift Molotov cocktails. He later burns down the asylum as part of his mental programming.
The Lungfish boss fight combines gamer-based fear with psychological terrors. It takes place at the bottom of a dark lake, in a bubble of air that the boss can contract from "almost comfortable" to "unbearably claustrophobic" in a matter of seconds. Since the main character and his family have all been cursed to die in water, a pair of glowing green hands hover at the edge of the bubble, following the player's movements and grabbing them the second they stumble across the barrier. At three or four intervals, the boss swims off, dragging the bubble with it and forcing the player to run through a series of harrowing obstacle courses before the water closes in. The Lungfish itself is a hulking mutant, but the truly troubling part regarding it comes after the fight, when it's revealed that she's actually a very kind, intelligent lady lungfish named Linda who was mutated and enslaved against her will, and you've been feeding her boxes of nails. There are also crabs and sucker fish falling from the edges of the bubble constantly, but the latter are actually Nightmare Retardant, as they'll latch onto the top of Raz's head and wobble back and forth with an expression that can only be described as "8B".
Fairly subtle, compared to levels like the Meat Circus, but if you think too hard about two of Razís throwaway lines from Black Velvetopia, a moment of "I wish I hadn't thought of that" can ensue. At one point, he remarks "Iím beginning to feel like Iím back in high school...which is weird, since Iím only ten..."; the 'Appropriate victory taunt' (to quote Psychopedia) to be used against Cobra is "I beat you just like I did in high school, loser! Wait...who am I?" Talk about an identity crisis... Earlier in the game, itís implied that Raz is telepathic, which sort of explains the phenomena, but thinking about what might have happened, were there any more inmates or if Edgar or Fred were any worse than they were already.
The Brain Tanks are disturbing because either the child's brain they use for a weapon is Mind Raped into trying to kill its friends, or it's constantly given shocks and prods to produce psychic power. It's implied you're only half-conscious inside it, but still...
There's something... fairly unnerving about Raz being one of the people that sneeze out their brains. Nearly every character eventually does, and for all of those times it's pretty scary too, (the blank stares, the stumbling and "TV...") but seeing Raz like this is... Turn-away-from-screen-able. It seems off.
Which then turns both incredibly funny and unnervingly horrific when Raz's body stumbles off in search of a TV and you play as Raz's brain imediately afterwards for a bit.
If you try to take Gloria's award statue before you've finished her level, she'll yell "You're supposed to be DEAD!! and lunge for Raz. Its implied its because she's hallucinating you as her estranged mother who comitted suicide, but you wont know that unless you've already been in her mind and unlocked her memories, so it makes it seem like Raz actually stumbled upon a genuinely dangerous mental patient.
Whispering Rock gets genuinely creepy once night falls. All the campers are suddenly gone, and dangerous wild animals are now roaming the camp grounds.
Psychic dangerous wild animals. Imagine, you're just exploring the area, when you stumble across a bear for the first time. And it then proceeds to use telekinesis on you.