Okay, I just finished playing through the game. It took me half an hour, but that's partly because I couldn't remember where the broken grandfather clock was. Anyway, I think you're really onto something great here. This game has one of the best real-time combat systems I have seen. It's extremely fluid and user-friendly. The game wasn't really scary, in my opinion, but I definitely want to play more. I love how you would return to old rooms and encounter new enemies that weren't there before. There is a very Resident Evil feel to this game; lots of stuff reminds me of the original RE. Your health display, the way you are asked if you want to pick up every item, and...well, the zombies of course.
The things you really did well: (1) Combat. Magnificent. I would like to see some more challenging enemies later on in the game, however. (2) The ball-and-spike puzzle thing was amazing. I only barely dodged that first ball, but I ended up dying soon after. It was very well put together. (3) The lighting effects in the basement. Very eerie...it really helped establish the mood. The painting that watches you was great too.
Things that could be improved: (1) A way to exit the game, although someone already brought this up. (2) The creaking doors get a little annoying after awhile. Might I suggest only playing the sound during cut-scenes and when you can actually see the door swinging open? But it's your call. (3) The dialogue. It was a bit awkard at times...no one seemed overly concerned about finding the dead body in the wolf room, and if they couldn't get out the front door, then how did they know the boat had sunk? Other than that I didn't have a problem with it.
All in all, a very worthwhile game, even if it's a bit on the short side, even for a demo. I'm looking forward to seeing this one develop. Keep it up.