I mean, the game would be panned by parents if it included Resident Evil, a game that includes chopping off hands, human-on-human gun violence, zombie attacks and giant mutant fetuses crawling in creepy old mansions, and look who Infinite has right now.
Secondly, Pyramid Head could absolutely get away with lacking blood and violence, just look at his appearance in Bomberman.
Thirdly, the SH director said Pyramid Head was a part of James's story, the major reason behind his ire towards Konami using his monster. By having James be the playable character in addition to Pyramid Head, we would be honoring the story of SH2.
Fourthly, I dunno if you got your impression of Pyramid Head from the Gans movies, but in SH2 proper, Pyramid Head wasn't necessarily as violent: he threatened with violence, yes, but he doesn't actually seem to follow through with it in regards to our protagonist: he exists to torment James, not flay him alive. Sure, he does it a lot with Maria, but he's not inherently violent.
Fifthly, the accolades of the franchise should be enough to attract him to Smash, as Silent Hill 2 is not only the absolute peak of the franchise, but also considered the greatest game in the entire horror genre. Not many video games receive such an honor. As Smash is a celebration of gaming history as a whole, it'd make sense to include Silent Hill in some capacity.
Sixthly, as I've mentioned before, a user on this very website said the SH director was A-OK with crossovers and even congratulated the DBD developers over the Silent Hill chapter.
Seventhly, Smash seems to have this effect of drawing people to the lore of new franchises. Even if they do eventually manage to piece together what he symbolizes, they won't at first. Just think about how Doom Slayer requests exploded when Joker's moveset was shown: they didn't know his Gun was fueled by cognitive mumbojumbo, they just focused on the fact that it looked real enough to justify Doom Slayer being in Smash.
So I understand where you're coming from, and respect your opinion about the topic of PH in Smash, but the fact of the matter is that there are a metric ton of reasons why Pyramid Head should be in Smash over PSASBR.