you are not in a costume, which you need to be, they are just making you follow the rules by taking you inside their costume. You are one of them in their eyes, just without the suit
You're right about that part, but the guard could also be Micheal because the souls (if this is after the missing children event) do think he is William because of the similarity of how they look, it is also a good possibility because of how it says, "what he has done" But the creator of this fan game never exactly said why we're supposed to kill him, and either of us could be right, so there is no point in rudely criticizing the creator because of it.