There used to be very long threads on this subject in the 'other' forum shortly after the game's release and as has already been repeated here, it was often stated that the game originally started out as having nothing to do with the Silent Hill franchise. However, Konami lost faith in the commercial viability of the title somewhat late in the game's production and so asked Team Silent to help make the game part of the Silent Hill franchise.
The rumour was that most of Team Silent declined, but that Akira Yamaoka agreed and was made a producer by Konami on the strength of his loyalty - whilst the decision of the other members didn't exactly endear themselves to Konami in the process. Since when I believe Masahiro Ito and Hiroyuki Owaku (from Team Silent) have only made contributions to the series in a series of downloadable Silent Hill comics made available only in Japan. (Masahiro Ito did design the cover artwork for the planned Japanese release of Silent Hill Homecoming - it even featured on the Japanese Konamistyle website, but the project was eventually canned.)
I do vaguely remember reading a magazine at the time of Silent Hill 4's release where Akira Yamaoka did mention that one of Ryu Murakami's novels (Coin Locker Babies, I think) was an influence on the game.
What may also (emphasis on may) be of interest is a similar rumour surrounding the Konami release of Nano Breaker. It has been said that the game was originally designed to be part of the Castlevania franchise with IGA (aka Koji Igarashi) acting as producer - and that Konami didn't like the direction it was heading in and so released it as a stand alone title. For those who may have not played it - it is a rather alien and desolate game (seemingly set in some apocalyptic future), but the mechanics of Castlevania in the game play are not difficult to discern.
Panzergott wrote:I think if SH4 wasn't a Silent Hill title, it still would have been a good game, but then again, look at Siren. That game didn't do so well and some of the creators of Sh1 were involved in the making.
Keiichiro Toyama moved on to make Siren (released as Forbidden Siren in Europe - though ironically it was the sequel that was forbidden a release in America due to a lack of faith by any publisher) as well as Siren 2 and Siren Lost Translation (Siren Blood Curse in the West). Personally I always thought that the original
Siren was an absolute work of art, and second to only the initial Silent Hill trilogy in terms of quality.