I really enjoyed my playthrough of Eternal Darkness however I think the sanity aspect is overated.

It comes across almost like a gag or a joke, a wind up. It never actually caused particular tension and didn't affect gameplay other than for a very brief moment like a gimmick.

The most tension inducing gameplay mechanic I have encountered in a game, beyond that of a standard death, are the item stealing tubular monsters 'Like Likes' in the Zelda series.

Particularly when I was younger, as I did not know which items could be stolen. The prospect of losing items was terrifying as many of the game's mechanics are built around using said items.

I think similar tension could be used in survival horror games by enemies inflicting permanent negative traits or stealing/destroying certain weapons and items.