The first one may actually be suitable, given the application of extreme exaggeration, yes. A giant, tumour-mutated head all out of shape and running with gore, jump suit and axe. What's the problem with that? It'd look like something straight out of The Last Of Us. Read: Fictitious.
To address the side note: No, I do not believe that terminal illness sufferers face the same level of social stigma and negativety as those struggling with mental health. I get the feeling that you're of the impression that lack of sensitivity in this matter indicates no experience with mental health problems, yet I can assure you that I've had more than my fair share of dealing with it, and still do. I've felt the pressure and the worry of revealing these problems in all walks of life, not to mention when trying to get jobs (Do I lie? Will they find out if I do?). With help and understanding, I cope.
However, your point of exaggeration is very valid and prompt. Exaggeration of "normal" things forms a very solid base of horror fiction. Just because something is an extreme version of something benign or misunderstood doesn't mean that it's directly demonising the basis. That is skewed logic, and if it were the case then we should just remove all zombie films, costumes, and paraphernalia from the shelves because everybody knows someone who died.
Reality <--------------------- right here
over here -------------------------------------------------> Fantasy
The distinction is easily made when materials such as those at the center of this furore are involved. They're so obviously "out there" that only those looking for something to be offended about could possibly find it.
Exaggeration tends not to work so well (and distinctively) in other genres outside horror, though. While I'd be willing to give these two costumes and their names a pass, I wouldn't be so impressed with a "Black Mambazo" costume or something sporting giant lips and the like. You get what I mean.
