What I would like to see is something a little more like Call of Cthulhu(sp) or Eternal Darkness where they not only try to screw with your head but rather try to disturb the player rather than startle them. (Which seems to be the tactic I see most commonly employed but it's very effective, it's made me jump a few times in American McGee's Alice and Undying, which I doubt people think are really scary games)
what I'm thinking of is...think of what made Dumbo so disturbing. Remember what I'm talking about? Pink Elephants on Parade? Exactly. Imagine sequences like that where the things that make your character scared are so fantastical and over-the-hill they can't possibly be real and at the same time you wonder what the heck was going through the developer's minds, or even the characters' minds since they're seeing this. And of course the twist at the end (okay not really at the end) is that they were imagining the stuff like Pink Elephants on Parade, or being forced to, so they were their worst fears throughout the course of the adventure.
It basically would play like a 3D version of "Point and Click" adventure games with emphasis on exploration and puzzles rather than poorly executed combat. The only way to defeat the enemies you don't run from is to simply outsmart them or outrun them, like in Clock Tower where you had to hide from Scissorman or get him off your heels by making him jump on a broken platform. Of course this is all inside your imagination...so what exactly did you hit?
I also would of course use the startle tactic...but I wanted to do something different. Instead of say, the Bathtub scene in Eternal Darkness, more like play a scary noise and then show a field of flowers, or other various psych-outs like where oyu hear something scratching on the floor behind you or somebody walking, or hear a car coming towards you from behind the camera and when you turn around there's nothing.