This is the craziest family tree ever.Well, over the course of the game, Bill seems to have been very close to Sayoko, Ashley's mom. Maybe a little too close. In fact, it's pretty heavily implied they were sleeping togther. And Bill pretending to be Ashley's father for a while was not only creepy, but eerily convincing. In fact, it makes more sense for Bill to be Ashley's father than her canon one. So let's assume he is. Later, it's also said that Franny had a son, presumably Bill, since he is the last heir of the Edwards. If Ashley is Bill's daughter, this means Ashley and D are first cousins, twice removed.
D DOES have legs and a pelvis area.Ashley just can't see it because Trace Memory ghosts are mostly 'what the looker can see.' Ashley can see D because she's so pure and open-minded. She can't see his pelvis area or legs because she doesn't know what that should look like on a guy, and without the connector, can't picture the legs just being there. This also explains how D is always at the same height. And as to how Bill saw him at the end? Well, ghosts can make themselves visible, it just takes a lot of energy.