Sebastian's change of character from the first game to here is due to the result of what happened to his family. His daughter was killed in a fire and his wife left him. Like any other human being, he buried those emotions away in order to not face the reality which was where the first Evil Within came. The stress of going through that nightmarish world, losing his partner and failing to save a child like he lost Lily caused those blocks to be destroyed and all of his emotions resurfaced.
As we move further into the plot, we see Union in a progressive state of decay. Entire blocks cut out and floating around; houses, streets and buildings crumbling; even the sky progressively more messed up. At first, it might seem that each of the people in control make it worse (as they twist it around to reflect their personality, indicated by the color and general feel), but then we learn that STEM actually needs many people connected to it, whose brains will act as processors, to keep it stable. At first, even with all the Lost running around, things seem relatively normal...but then Sebastian comes in, killing them by the hundreds, and things start going awry. That's because Sebastian is destroying the very same brains keeping the place in order, one by one!
In regards to this. While Union actually IS designed by Mobius and there are plans for each building and the entire city, each brain makes it as it is. In the end, Union is but a pile of dust and goo with just 2 buildings standing: the Castellanos' house and Seb's room. Guess who the only 3 people still connected are...
It was confusing how the Mobius Administrator had some form of power when he was in Ruvik's world. He wasn't present 'physically' but used Kidman as a conduit due to having her chip inside her.
It could also be that the "Administrator" she fought in the previous game wasn't really him, but instead a manifestation of her own fears of his power and control. It'd at least explain why there seem to be no hard feelings or distrust about her "killing" him at the end of "The Consequence" DLC, as you'd definitely expect that to be the sort of thing he would've brought up at the next employee review.
It wasn't that strange when we see the better version of Myra consoling Sebastian. That's because it's the real Myra that wanted Lily out of STEM.
Myra staying behind in STEM and dying so she can use it to destroy the minds of Mobius' members isn't just a Heroic Sacrifice, it's a case of Redemption Equals Death! After all, if you look past the instinctive Protagonist-Centered Morality, Myra's bungled plan to rescue her daughter led to the death of hundreds of innocents who had been tricked into signing up for the STEM project via the Mu Recruitment Centers. That's a very heavy burden of guilt to bear; no wonder she chose to sacrifice herself to wipe out the organization ultimately responsible for it all.
Interestingly, Clair de Lune still plays when Sebastian is near an entrance to his Room. Why would he associate that particular piece of music with somewhere safe, rather than the soundtrack to the trauma he went through on his first experience with STEM? It's possible that his mental connection to safety and growth were so completely reinforced and associated with Tatiana, the mirror, the electroshock chair, and Clair de Lune that the only way for him to feel comfortable in the STEM was to almost completely recreate them, along with his office.
The fact that Nurse Tatiana is the representation of Sebastians inner strength makes the whole electroshock chair to get your upgrades a little less horrifying, as it means that Sebastian is just unlocking his own inner potential or skills every time he uses it.
Shock therapy, figuratively AND literally!
When you think about it, every character in the game has their own Safe House. Stefano has the theater, Theodore his fortress, Maya her old home, Lily her old room, Sebastian his office, and the Mobius agents use various houses and rooms that were built by Mobius in case of emergencies.
Mindwiping the citizens of Union only delayed their transformation into The Lost. The only way to stop the corruption completely is by confronting your past and fears and dealing with it. The citizens forgetting their past lives and only living a idealistic life in Union led to them being unable to confront their pasts and therefore, unable to stop the corruption when it came.
One file that you read notes that once they have 2 million exabytes of memory capacity, Mobius will be able to activate the wireless STEM planetwide. It also adds that each person added physically adds 100 exabytes. Therefore, the key number of captives is 20,000. Union's population looks to be at least 10,000. How close were they to achieving their Matrix-control dreams?
Once you've played through at least once, you realize that poor Julian Sykes is doomed no matter what you do. Don't help him with his private escape route? He gets killed by Father Theodore. Help him with it? Then there is a 3 in 4 chance that he wound up in a Fate Worse than Death by being irreversibly trapped in a deeper level of STEM - in which case, you hope that Myra's plan actually did kill him, as a Mercy Kill — and a 1 in 4 chance that he made it out... only to drop dead anyway when Myra's plan takes effect and wipes out all of Mobius.
Although, he mentions that the first thing that he plans on doing after he escapes is to get rid of his Mobius implant. So, if he did manage to escape, he may have gotten the chip out before Myra could use it to wipe out the organization. And if he didn't, well... At least he'll be spared from an And I Must Scream scenario.
The game doesn't ever explain what happened to the Castellanos family's nanny who supposedly died along with Lily. Which means she was either in on it, or Mobius (and by extension, Esmeralda) had an innocent, middle-aged caretaker burned to death as part of their scheme.
With the aforementioned Bottle Break skill, instead of struggling with the grappling enemy and breaking a bottle over their head to get them to let go, Sebastian simply pushes them away, THEN smashes the bottle on their head. This move strangely detaches the importance of the bottle from the actual ability (you presumably could have used the butt of a gun or anything else to stun your foe now that you were free.)