Well Sabby, since horror and 'scary' is something subjective, neither of us can really be 'Right'. :/
I'll say this, though. Dead Space nails the Horror part down easily. There are images and moments that will haunt your nightmares.
ooh...and for an Extra Challenge and to go for Sabby's "Omg this isn't a Survival Horror Game", I must mention Hard Core Mode, which makes Health and Ammo Scarce, and also gives you only 3 Saves, much like the Limited saves from Resident Evil, basically making the game as realistic as one can get. (Excluding the whole setting and everything.)