Pyramid Head is pretty much James, yeah. He's like the other monsters that are James' guilty personified, but on a much greater magnitude. His subconcious based the image of Pyramid Head off of the painting of the executioner in the Silent Hill historical society you saw in the game, when he visited SH years ago.
Mary is a manifestation of both James' guilt and inner desires. She's what he, deep down, wanted Mary to be - carefree, slutty, vapid. Of course, Pyramid Head is there to remind him of what he did by killing her repeatedly.
A lot of James' inner guilt is based on sexual themes that have been repressed due to Mary's condition. You've got the nurses, the monster just made out of legs that Pyramid Head molests, others.
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Black Turtle did a pretty good job.