Somebody mentioned Eternal Darkness and its revolutionary insanity effects. There's another game - made simultaneously, so none of the two has 'stolen' any ideas from the other. It's called Dark Corners Of The Earth, and if you know who Lovecraft is, you know what kind of a game this is going to be. Lovecraft is one of the best horror writers ever, and it's sneaky suspense and shadows and not really knowing what's going to happen next... It's a FPS, and you can go surely insane... see stuff that isn't really there, that sort of thing. You can get vertigo too. And all of this in first person - and get this: without any interface. No health bar, no powerups, and if you wanna see how many bullets left in the chamber, you look at your gun and check it that way. If anybody played the pen and paper roleplaying game Call Of Cthulhu, they get sort of the idea of how scary it can be. The game's licensed by Chaosium, by the way, so everything's original. Check out the screenshots:
http://www.callofcthulhu.co.uk
It's not out yet, but hastily getting there.