The whole thing was Julia's plot
- Stauf represents Julia's monstrous side; when we see Julia die at the end, this is symbolism representing that her vicious side has won and she is no longer the person she originally was. She planned to sacrifice children in order to open a portal to another world/hell, but she invented the character of Stauf to be her "business persona" to reduce her feelings of guilt. (Initially Julia wanted to open this portal so that she could use its power to get her youth back, but eventually her cruel side takes over and wants open the portal just for the sake of making others miserable.) She kept her two personae purposefully separate and was already a bit crazy, hence her frivolous & manic nature when she's acting casual in her bedroom. She invited the other guests because their souls were needed to open the portal too. The details about Stauf's backstory are a mix/exaggeration of events from Julia's own past. This would explain why we see relatively little of Julia exploring the house (compared to the other guests).
Stauf still lives
- But not in the 'game world'... of course he might have you believe that you defeated him in some manner. Something stands out... the AI for Stauf's Reversi puzzle, which grows better as computers get more and more processing power... possibly just as he planned...
The house featured in the game, is within The Otherworld
- The warped layout of the house may be due to Stauf's memory building this realm. Hence the map of the house being so different from actuality. An example of this is the chapel in the house seeming to occupy the same space of Marine Burden's bedroom simultaneously. In the Other World, such Alien Geometry is quite common. Like Silent Hill, some unknown force bars the way into certain rooms until puzzles have been solved. Somebody was kind enough to leave a game book to be a good sport, oddly enough. The voice of Stauf likely comes from the sentience of the Otherworld, taunting Ego with the puzzle obstacles. Ego's trip through the house is in fact a personal journey to come to grips with the denial of his death at the hands of Mad-Man Stauf. The reunion with Tad at the end is wish-fulfillment, signifying acceptance of his death; then Ego enters the light, letting go of his escapism. Silent Hill games have also dealt with repressing a horrific truth.
- The children dying after taking home Stauf's toys is part of the 21 Sacraments. This may explain how Stauf built the actual mansion we see in the game. The "House that scares people", that is talked about in the intro, is probably not nearly like the Otherworld locale.