Over at LotFP is a post about handling horror in fantasy RPGs. James Raggi raise an interesting criticism of sanity mechanics: NPCs can be overcome by horror, but don't take control of a PC as a result of a failed sanity roll, and certainly don't have PCs frightened by stuff they normally would just fight.
Now, the last part is pretty solid advice, but there may be a problem with PCs never feeling the effects of fear unless the players choose to. There is a Cause Fear spell, after all. The main problem with sanity rolls, as I see it, is player resistance to being told how their characters react. Players accept the risk of death, and should, logically, also accept the risk of fear. But how can you implement this without taking over player characters?
Maybe make fear results beneficial, so that players might opt to choose fear?
A quick fix would be to allow a panic bonus: if a player opts to be panicked, the character can run at triple speed away from danger, but risks fatigue damage from the exertion. Simple. No one is being forced to do anything, but a player now has an incentive to choose panic. Likewise, you could allow a "paralyzed with fear" bonus: paralysed characters would get some kind of bonus against being physically forced closer to the object of their fear and may even be partially or wholly immune to hypnotic/magical commands to move closer, but the character must make a save to regain the ability to attack or take other action.
I have another idea on this, which I'll save for another post.