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The puppets(Seeker, Greeter, and Screamer) are still in the level, but their A.I.'s are 10% more difficult than Level 6: You've gone too far.
The level itself is colored in a bloody red. Your flashlight will show a red light instead of a white one, but it will still point out the hiding and safe spots. Note that the level is named "Desperate Scream."
The level name, Desperate Scream, is probably referring to Tim Denson, since he supposedly killed his daughter and is now being tortured by Nightmare(Remember the level color?). This can also refer to the daughter living in purgatory(if it even makes any logical sense), though this seems unlikely due to the lack of bad deeds done. Another possibility is that Tim is dead and that he is trapped in the Underworld.