Incidentally I played it for a bit tonight, only the beginning, but so far I'm mostly scared of the game getting frustrating, not scary. I noticed you can't save your game manually unless you quit, and it's only one slot per player. Can you even die? Physically or just from losing sanity? And what will happen if you do, are there checkpoints, and what progress will you lose? Or is it part of the horror that I'm not supposed to know? ;)
You can die but you never loose much, if any progress. Your told at the menu screen not to worry about saving (it distracts from the experience) and I think they managed to hold up their end of the bargain. I didn't die much so I can't be sure.
I did quite to save once or twice, didn't matter that much.
Like I said I don't think you die if you loose to much sanity. Your character just falls on the floor for bit as if he was tired out. (Daniel's a bit of a wuss if you ask me. I get running from monsters but I for one often stand in dark rooms without loosing any sanity).