Lost in Nightmares was very short, only about an hour on Normal, although it is quite difficult on harder difficulties, to the extent I died about fourteen times in the span of half an hour against those enemies so often references, known, I believe, as the Guardians of Death or something close to that. I just call them Guardians, or Anchor Man. ^_^;
The zombies people saw were, in fact, progenitor zombies, which implies that Spencer was experimenting with the Progenitor virus in his basement and the sewers below it, and I believe the Guardians could have been there to oversee the prisoners, perhaps, or maybe they were a different strand of the Progenitor virus that mutated people in a way not quite expected? I'm not sure.
The game is definitely worth buying, though.