GamingTech recommends Performance mode + PSSR.
So I finally had a chance to check out the update last night. Again, seeing it in person, it's immediately obvious that PSSR is much better than FSR in this title. FSR has this "smear" over everything that results in a decidedly lower resolution looking image. Not to mention is doesn't resolve nearly as much details and still has a ton of motion artifacts throughout. PSSR does a much better job especially with regards to the motion artifacts and the resulting image is more convincingly 4K like. It's not even close IMO. I could also tell that Remedy did much to reduce the overall noise and grain present in the image previously. Much of that is just inherent to the engine and we are now reminded how much was there on the previous FSR only version on the base PS5. When I first tried the PRO patch a month ago, it was better than the base but there was still a good amount of noise/grain in the image. It looks much cleaner now.
In terms of the modes, everyone will have their opinion but most will be happiest with the balanced mode (it's my choice for sure). I think the 40fps w/RT is the best compromise to get the optimal experience in this title. For
1) this game is naturally really slow paced with a high amount of input lag (by design) and is not a prime case for 60fps. Like I said, I played the entirety of the game in the fidelity 30fps mode on the base PS5 due to the IQ looking horrible and the inconsistent perf in the Perf mode. And
2) While I'm usually not much of a proponent for hybrid RT in games today, I think the RT in Alan Wake 2 really does make a difference. This is mostly because there is no good fallback for reflections w/o RT in this game as many of the mirror reflections (mirrors, glass etc) just have an ugly blob for the character in the non-RT mode. This really detracted from the experience as the game has a ton of mirror reflections throughout and it just looks horrible. The game was clearly designed with RT reflections in mind as they are used judiciously and really grounds the world much better. The 40fps mode also doesn't really look any worse or lower resolution than the 30fps mode as the only difference is a slightly higher input resolution for quality mode but the final reconstructed image via PSSR is nearly indistinguishable (otherwise same settings). I would go as far as to say that the 40fps mode pretty much negates the 30fps mode in this game. The additional motion smoothness and higher temporal resolution is immediately noticeable over the 30fps mode and again the higher resolution and added RT really adds to the experience.