I liked the game a lot, but I didn't actually find it scary. I guess I should explain myself before everyone starts flinging flames at me.
In order to activate the sanity effects, you had to lower a bar by being in the presence of creatures. That's fine. The problem is that you can very easily bring that meter back up. By giving you the ability to heal it that easily, the fear factor is lost (for me, at least). Plus, I didn't find the sanity effects all that scary, more intrusive than anything. Except when your head falls off and starts quoting Hamlet, that freaked me out the first time.