Kharloth said:
How about a game where you play from the perspective of a man suffering from violent hallucinations and schizophrenia. The world slowly begins to morph and change into something that seems to comes from the darkest nightmares. And whatever actions you do, may or may not have an impact on the real world (ie, the demon that you thought was living inside your basement, that you killed with an axe, was actually your sister's dog whom you were looking after). As the game progresses, everything become more intense, more unreal and your character gradually begins to go insane.
That would truly work if there really was something wrong going on in the world. Say, a demon invasion is actually happening, and it's up to a schizophreniac to stop them, but you can never be entirely sure if what you're seeing is truly the enemy or just the product of your diseased mind.
There is already a game like this.. It's called Condemned, minus the schizophrenia
To make the mindfuckery even more intense, each New Game would randomize certain elements, such as the demon in the basement that you mentioned might turn out to be an actual demon, the dog as you suggested, or even your sister.
Of course, there would be ways to distinguish the reality from delusion, but they would have to be subtle, such as small audio and visual clues, while at the same time not giving you much time to decide since if you're wrong you might end up dead or worse.
There would be a "Get out of jail card" solution in the form of antipsychotic pills that would be rare, but when taken would suppress the halucinations for a short period. Of course, they'd be the most valued items in the game.