The Evil Within 1, despite it's singularly grimy aesthetic and sturdy survival horror mechanics, is too beholden to what came before to make any true steps forward. Hard to read it's shameless pastiche as anything other than a response to Resident Evil ditching the horror and leaning further into campy action.
By contrast, The Evil Within 2 concerns itself with the future, both in form and narrative. The hub world structure does feel like it could've been the next step forward for the genre in another timeline - it's the key thing that differentiates this game from Resident Evil 4 and, by extension, TEW1. It gives way to some thrilling discoveries, and manages to mine a lot of suspense from the stereotypical suburban backdrops. I think my favourite part of this game though is the way it reckons with The Evil Within 1's iconography. It takes a hostile approach towards the images and ideas in The Evil Within 1; Sebastian's frequently referenced guilt and trauma stems almost entirely from the first game's events, with these feelings manifesting as bosses and locations from TEW1. This means that when the time comes to overcome your grief, you shoot old you in the head and tear your old nightmares apart with a chainsaw, like a classic Sam Raimi film. It's incredibly gratifying, and particularly refreshing when so many modern horror games/films about trauma are only interested in using the topic to reach lukewarm conclusions, instead of using it to kill things with chainsaws. It even uses the ridiculous fake film grain and letterboxing from TEW1 to great effect!
Just a flawless, concise experience. One that is obviously indebted to Resident Evil 4 but is also bold enough and smart enough to (literally) tear apart The Evil Within 1's attempts at creating a new horror franchise to make way for something better.