Your friend seems to be under the assumption that all games should be focused on purely gameplay, and that everything must be as hard as possible for it to be enjoyable. Let me let you in on a little hint, frustration and death/failure in horror games actually tends to break immersion more than it aids to it.
http://frictionalgames.blogspot.com/2010...games.html
Amnesia is a story based game, so why the hell would they change it so you had to focus on the gameplay more? Not all games have the same focus, some are made to offer you a great story, some are made to show off innovative and interesting gameplay, some are just for fun, etc. Putting the main focus on making it as hard and frustrating as possible ends up taking away from all of these, unless the purpose of a game is to be frustrating. In Amnesia, making health not auto-regen would result in you paying less attention to the story and your surroundings and more attention to the gameplay. Very hard gameplay can work though, but only in certain genres. For example, in platformers, very hard gameplay can be a great thing (Super Meat Boy), but that's because that style of game focuses purely on gameplay. Now, in Amnesia, if they made it so it was incredibly hard not to die at every single monster (which he seems to be suggesting) then you'd spend less time focusing on the story and more time raging at how outrageous the monsters are.
If you really need an example, look at Cry of Fear. I personally loved that mod, but, the coop is kind of shit. Why? Cause it's fucking IMPOSSIBLE. they spammed incredibly tough enemies in almost every map, including ones that can instant kill you. By your friends logic this should be terrifying, right? Wrong. I lost any sense of immersion I had, I was SO FRUSTRATED with some of the levels in it that I ended up almost quitting. I wasn't scared by it in the slightest, and the devs even said themselves that coop wasn't supposed to be very serious and it was more just for fun.
How hard a game is, whether it be how scarce medkits are or how hard it is to beat a level or how tough escaping a certain enemy is, has no bearing on how scary it is. All "fear of frustration" does is kill immersion, it makes it so you are no longer afraid of the enemies but rather afraid of having to redo parts, which is basically the games way of screaming in your face "HEY YOU REMEMBER YOU'RE PLAYING A GAME RIGHT? RIGHT?!".
Anyways, I think you get my point. I could go off on little tangents on all the other things from that letter (this part especially made me laugh)
But damn it's super long.