First off, I'd go
here to check out some of the photos this guy has done of old asylums, crypts, factories and the like. Print some up to give your characters a feel of what they see.
Then, I'd probably make the entire island, or at least the grounds of the asylum, under a permanent silence spell. The clerics/doctors that run the place use sign language to communitcate (for the most part, they still have written reports and the like). This could be an interesting way to make the party work - they can't communicate other then hand signals and notes - which I (being a bastard DM) would probably make the players actuall do!
Something I'd also throw in might be a few low level psions (like 1-3 levels of psion or psychic warrior). I can only imagine that a mad mage would try to access some sort of power and psionics might work under silence spell. Nothing to really hurt the players just make them wonder. Or hurt them if it adds to your fun.
After that I'd start to think about ways to make them scared of walking through the place. Play with their vision. Have the characters with dark vision/low light vision see things those with normal vision can't see/don't see. Have shadows that don't match to anything created by light (people walking by, shadowy runes on the wall, shadow hand prints, shadowy "blood" streaks). Play with their sense of smell as well - whether it's flowers, rust, the ocean, whatever. Maybe even mess with there sense of touch. IE - the walls that look like stone feel like soft fur, the rusty doors they are opening feel like water (slippery, about ready to give, but still solid).
Lastly, add in the ghosts as every one as mentioned. Some may good (help the pcs with what they need, or take them to places that may have a clue), or they could be bad (i don't think i need to say anymore).
You might have them find the older parts of the asylum too, where more aggressive techniques were used to quell the patiants (ie - torture rooms). That would be a really good place to put some unhappy ghosts.
What about having the silence spell that i mentioned earlier fail while the pcs are there? it might be interesting to have an outside force attempt a prison break (maybe for a mad mage prophet of some sorts) and the pcs have to find whatever they are looking for, deal with a loony bin of mages, deal with the incoming jail breaking force and the clerics that take care of the place. oh yeah - and all the weird crap is still happening. Could make for a surreal jacobs ladder/apocolypse now kind of game.
I don't know why your party would be going there for, but i think i may yoink this idea for my own use.