What a great concept, and good execution too! A few things that I think could spice it up to something really special:
1. Have the pins do more than just change red as they approach, have their graphic morph into something sinister
2. Don't use the evil laughter right away, it becomes less menacing the more you hear it, save it for when the nightmare has increased. Some more subtle, slightly sinister sounds would be effective at first.
3. The concept for how the music needs to change is there, but since everything else is warping something that is already there, I would have the music also warp, instead of changing to different material altogether. If it is slowly becoming more sinister with each failure, it will go along with all of the other elements much better.
Really fantastic, I enjoyed it a lot!