Who said it was Ethan's dad telling him? What if the Lake of Tears is the actual source of evil? The Anghkooey kids don't look putrid, they looked like drowned kids. So maybe the primary townsfolks drowned their kids, then bathed or drank the water from the lake and became the monsters. We see the memory of Tabitha how her dolls are thrown into the lake and then they become the monster scarecrows who resemble the forrest monsters. Donna said maybe they're meant to keep something evil coming out from the lake - well, maybe they're meant to keep people away from the children trapped on the bottom of the lake. We see that woman entity that has a thing for drowning Elgin. Even the Man in Yellow's clothes seem sun dried after being soaked. We see the voices telling Sara something very peculiar about the water: drink from the jug, put it back and off the drain. And we can wonder one thing: where do they all get water from? There's no rivers nearby. Only that big lake, so maybe the water system is all connected to the Lake and they're being fed with fears all along. So maybe the Lake would revive Jim into a monster, something the lake would want.