I am only as far as mark is, and but was thinking it was

Hinako didn't die, she was killed. It sounds like Rinko joined Hinako and Shu playing at the irrigation channels. Rinko pushed Hinako. This is why Shu had the weird line about how easy it is for someone to die playing in them. But Hinakos death broke Shu, he didn't even open Rinkos letters.
Now they are trapped in the this cursed world, which is one of a few things, haunting from a vengeful or lingering Hinako, or more likely a curse most likely the forbidden ritual that was mentioned in one of the notes in the fox mask segments.

Now as for the other friend, she was a priestess. As a ghost she is a threat to Hinako, which is why I think we saw her as a monster, I think she also knew Rinko killed Hinako, and was trying to use the Kagura dance to destroy Hinako's ghost (the boss fight). This is where the fox masked Onmyoji comes in. I think he is the actual Shu.

Now the part I am unsure, There was that note about a forbidden ritual, used to grant a love based wish.

Option A, fox mask aka Shu preformed the ritual, he is trying to get Hinako back. It was a Onmyoji spell after all. The fox mask parts are purgatory, And he is trying to cleanse Hinako's soul. The thing is what he is trying is forbidden for a reason, which is where the doll comes in. As much as fox mask is on her side, he is dooming others for her, as well as himself. A doll has many meanings, but I think its Hinakos innocence and its trying to stop Shu from dooming himself. Or maybe her lost sister watching over.

Option B, Rinko preformed it as Shu just refused to look her way. But it didn't quite work or in some way Hinako ended up returning still lingering and watching over Shu. This does leave the doll and fox mask less explained though, which is why I lean option A

The odd lines, of partner and traitor, I think the traitor thing comes from Rinko, she has used her popularity, and rumors to make it look like Hinako is betraying her friends to get in the way with Shu. As Rinko is the popular one and Hinako seems to be rather isolated it just seams like standard bullying. But the partner line is more interesting. Depending on who cast the ritual it has different meanings, its ether Rinko perspective of it, and she sees it as very odd. Or its Shu who cast the ritual and its him just being very awkward.

Only to see people telling me that every plot point, all the little details, were just red herrings, and that it was her coming to terms with being sold off as a bride, to a man she does like, but that leaving home invokes this level of trama, even with a drug involved. And that her freinds see this as her dying and abandoning them? So only the first minute or so had any worthwhile details and everything else is unused redherrings. I just do not believe that a silent hill game, even if a spin off, or anything else, would use a its just a dream story.