Since i have a bad habit of making long posts...
TL;DR warning, scroll to bottom for my favorite area.
For me first time through, i enjoyed every area, the Village really did have that horror feel to it, when you first arrive, thinking the villagers are all just bat s*** crazy, oh well, get Ashley, mission accomplished, until after Leon is injected with a plaga egg, of course.
then you realize something is at work. Crazy Villagers, mutant geco in the lake, being knocked unconscious due to the egg hatching, waking up at the twilight of night, surrounded by parasite infected villagers, definitely gave the survival horror feel to it, especially after that moment you sit there and think "Oh man, Leon, what have you gotten yourself into now"
The Castle... You'd think you would be safe from the villagers in there, but nope, after running into the monks in the church back in the village, you know you would be seeing more of them in the castle. The theme definitely was set right for it, especially with the monks chanting as they'd approach you.
The hedge maze, Garradors, Novistators, the hedge maze, sewers, mines, i thought the mood was set perfectly.
The Island, was mehish, but like i said before, first time going through, and running into your first regenerator, definitely enough to make you run with your tail between your legs without giving a second thought. It definitely gave you an idea of what Saddler was planning to use las plagas for.
But all in all, every area was my favorite, but the most was the Castle, even when i play RE4 today, that battle with Verdugo after Salazar sends him after you, is just epic, first time i ever played, just before i fought him, i couldn't touch the game for almost two months, i got up to the point where the cutscene of Verdugo peering out of the sewage pipe that you passed not even 10 seconds prior, and shut the game off in pure fear.