My take on what this movie was. (warning SPOILERS)
I have read a lot of the topics on this film, and I gathered a completely different story than what most others posting on here have. I actually liked this film, which was surprising...considering I am not a fan of the whole lost footage thing. My take on this film is as follows.
The film was a single vhs tape, edited by the guy in the chair. He had collected so many "lost" videos, that he wanted to make one of his own. He hires a group of local kids that show the potential to disregaurd the law while filming and follow through with his requests of them. Making them think they are looking for a specific vhs tape, he sets the house up to be a controlled environment. Utilizing the upstairs as a place to view the tapes, and the basement as a place to store other tapes in an effort to seperate the group. The victims enter the house, and start looking for the tape. As the "villian" waits while each victim views a tape, he utilizes that distraction to attack.
For those who are trying to figure out the connection of the stories of the seperately viewed tapes....it is the man in the house. He edited in the footage of the stories that the victims watched. As far as where the haunted house story fits in....well, I believe that it is just the remainder of the original footage of the tape he used to edit his product.
I believe that this film is to be watched as though the viewer entered the house, picked up a tape, and watched it from beginning to end.