I do exactly the same thing. I try to avoid saying "you see a werewolf" and instead describe it as a large, slathering beast - which could also be a wolfwere, werewolf lord, gnoll or ogre (system-dependent). Though my players know their stats, I track all damage (and damage rolls) so the only think they get is "the beast slashes you across the ches, and the pain nearly overcomes you... you feel woozy and are having trouble standing" (0 hp). This stops the players metagaming "I can take x more hits at this rate" and adds to the feel. The players love it too, so that's a good recommendation which I second.
This really is the best way to present and play a horror game, and even non-horror games can be made quite a bit more engrossing with the use of such methods.
Personally, I've played under DMs that tell everyone how many hp the creature has (at the start of the encounter), how much damage each strike did (to the creature and from the creature), and so forth - and I find it harder to really become a part of the encounter, of the game. On the other hand, I've had others that treat it more or less as FentonGib described, and I found it much easier to get into the scene and feel of the game.
Granted, the DM often gave more of a clue as to how low the PC's hp was. Most would actually state any hp lost to the PC, while another would give clues in gradation: sort of like the 'bloddied' situation used in 4e, except that he used 3/4, 1/2, & 1/4, and had another level for 'within 10 pts of 0' if a 1/4 hp would be more than 15 pts from zero.
Personally, I've been thinking hard on converting to a variant of True20 for a while now, but I'm still not entire sure about their damage save system. I can see it working rather well in horror, where you could potentially go from fine to dying in a single hit or take multiple hits and still be fine or nearly fine.
When all is said and done, horror is about uncertainty. Can we actually survive this encounter? Do we really know what we are up against? Do we still have a way out if it becomes too much? Are those sounds I hear the coming of re-enforcements? For us . . . or for
it? Uncertainty is not something that can be fully supplied in the mechanics or rules. The DM has to supply it: with the setting, with the presentation, with verbal descriptions that lack just enough details to make one not quite certain what they are fighting and also give a feel of dread.
I recall one DM - never got the chance to play under him - who would hold horror games in the evenings or at night - and under candle light instead of normal lighting. He'd have more than enough candles, so seeing your character sheet wouldn't be a problem, but from what I was told, the flickering of the candles, the occasional playing of back ground music (a great way to use some mood music or some well chosen halloween tapes), and so forth really set the scene before he even said a word. If a low powered fan was in the room, just enough to flicker the flames more often - its sound overshadowed by a cd of wind whistling through branches, it could really add to the effectiveness of the situation.
Personally, I like using original monsters - or at least altered ones - during horror campaigns. If the players are ever uncertain whether their attack is working, or even what form of attack to use, it adds to their uncertainty. PCs need to act more tactically during a horror setting. If they feel comfortable enough to just wade into the fight, then it is not a well made horror scenario. They should never be so absolutely certain - either in what attacks to use or in what they are facing - in a horror campaign. You don't even need to use traditional horror monsters. Any monster can do, if the setting is presented right. And if you just happen to add a bit of DR or SR or energy resistance to the monster, all the better.