Wha...? Failed? No, not at all! Very well executed, actually. And it did disturb me, but in this case, that's rather a good thing, I should think.
Sorry if my comment was a bit circuitous; what I meant to say was: you've done a wonderful job with this. I think you wanted the story to be ambiguous, to leave the reader with possibilities, wondering what was real and what was not, and you did that quite admirably.
I always thought you could do dark really well if you ever wanted to, and turns out I was right. Great work.