I would definitely keep the player's and DM's sections separate. Horror relies on the players not knowing all the details of the setting, and on the uncertainty of what lurks in the darkness.
I have been running an ongoing low-fantasy/dark ages horror game for about 10 years now. To me, horror relies on several key concepts.
1. The PCs feeling isolated, whether physically, mentally, or spiritually from others. This can work by having a blizzard keep PCs in a ruined keep, by an event that cuts off a PC cleric from his deity for a time, or by knowing something other people don't that makes the surroudings seem very sinister.
2. The knowledge that supernatural foes the PCs face are more terrifying and powerful than the players. If the PCs feel superior to their main foes, the feeling of danger subsides greatly. This also usually means keeping PC magical wealth and power to about 1/2 to 2/3 what the DMG suggests.
3. There are terrible secrets kept from the world that could fundamentally change things if they were known. Basically, the world doesn't really work the way most people think it does- there is a secret dark underbelly that is only revealed with investigation, but at great risk to those who look.
4. Bad things can happen to anyone, at any time. Good higher powers (gods) should not take an active role in the world, instead relying on their followers to make a difference. However, since it is an uphill battle for the good guys, few people are self-sacrificing enough to take up the responsibilities of righteousness, and the hard life that will acconpany such service. That said, the truly good NPCs and PCs should be people others can look up to, and as a potential savior from the darkness. However, such goodness also makes that person a target for evil, or those who envy his position and piety.
5. Describe events and the world in detail- and make the detail somewhat depressing and dark. Horror relies on giving lots of detail, describing emotional reactions of NPCs to events, and giving the players a good frame of reference to base their conception of the world on. I have found that the more fantastic or high-magic a situation you present players, the less it becomes horrific, and they regard it as simply dangerous.
6. Finally, give the setting a rich history, to give the PCs the feeling the world does not revolve around them, but that they are part of the world. If the PCs feel too central to the events in the world, they start to get a feeling of invincibility, which destroys any feelings of horror in the game. Let them know that while their actions might be important and valuable, they are not the center of the world.
I hope what I have described about how I run my horror game helps you. I would be interested in seeing what you come up with and playtesting it if you are looking for people to do that.
