Well, I guess I can see why Jim Hague is getting so cranky about this idea, but it's worked great for me in my games, from a gaming perspective - though we're talking about Far Realms creatures in D&D and not proper CoC action. Actually describing the creature, well, my imaginative powers tend to fail me - I have a hard time making it especially interesting. Instead, all Far Realms creatures in my campaign (true Far Realms creatures, that is, not merely pseudonatural ones) are completely invisible to any sense type as an Ex ability (even spells like divination fail to take the actions of Far Realms creatures into account, unless you use a special incantation along with the spell that basically tanks your Wisdom). FR creatures' SR is also based on this "invisibility." You can voluntarily take a semi-permanent Wisdom penalty to see more of the creature - staring into the abyss, as it were - for as long as your Wisdom penalty is reduced, with higher penalties giving you a more thorough description (so a minor Wisdom loss lets you pinpoint the creature, a greater one lets you fight it with it only having concealment, and the full-on, 20-point Wisdom "embrace the madness" penalty actually gives you some bonuses). Basically, the Far Realms and the normal multiverse are mutually exclusive universes, and you can't adequately understand both at the same time. And your mind tends to go all pear-shaped if you opt for the Far Realms' version of reality.
It's led to some very interesting combats, where some players try to fight something they can barely detect, or risk exposure to the creature's Form of Madness ability (cribbed from the FC:I) with a reduced Will save. I've found it does a much better job inspiring genuine fright in my players than the Sanity system I swiped from Unearthed Arcana, combined with an unspoken agreement with them that true Far Realms encounters are always going to be just this side of totally overpowering.
So your idea has merit, at least in my experience. I'd prefer a good sanity system like Jim Hague seems to prefer, but this way works better and more easily in my actual games.