The cult may have been larger than just the characters we see in Silent Hill 1 at the time. There was an unknown figure by Alessa's sick bed in the vision sequence, and possibly several others throughout town involved in the PTV trade with some connection to the cult.
And furthermore, if everybody in the cult was killed back then, there would have been nobody left to pick up the pieces and set the stage for Vincent and Claudia's revival.
I believe that Dhalia's sect (whatever it was) was greatly weakened over time. I mean, after SH1's event and Walter's first and second killing spree (witch killed Jimmy Stone, George Rosten and Toby Archbolt), most of the cult's leaders where dead, and the rest of the cult was left unmotivated. Then Vincent and "the power of money" showed up, (re)built the church and revived people's faith.
Those seem to be post-Cheryl additions to their belief system. So I guess what I'm saying is that maybe there's no fact of the matter about who the Red God or the Yellow God is, because they were just made-up characters installed in the chapel paintings to give a new sense of intrigue and mysticism to a religion that was quickly losing ground in the area.
I used to believe that too. But there's something off: Heather seems to remember the Half of The Sun as Alessa, so this thing was around when Alessa was a kid. I thinks Dahlia had a different vision about god. I think that, at her time, the cult was more mystic and less formal (more like a "god is a horned goat-faced winged woman" club or something), when Vincent built the catholic-like church it became more organized, like a real institution.
You're correct about the murals, although the areas in which they appear are "otherside" rooms if I'm not misremembering. I highly doubt they are actual murals painted by cult members on scaffolding; more likely they are projections from the town's recent past, like the seals of Metatron in the Lakeview Hotel.
I think the otherworld has messed up the church a lot, but I really looks like a regular catholic church, with some parts untouched. Like the Sunday school class room, or Claudia's room, or the confessional.