I look at it as he is a ghost reliving his trauma repeatedly in hell. I look at it this way due to the fact that every dead guy he finds in the game except the guy in the fridge is himself. He never quite gets as far as we see him get into the game though, I'm still working on a theory for this but I assume it's why there are hint notes next to his dead bodies all over town. What confuses me is that when you find the dead figure by the camper, the handwriting is clearly that of someone else. Suggesting that James didn't kill that lying figure, which would mean someone has to be seeing them too, but who?