I got this game for Christmas. I LOVED the first half, but after the Marsh refinery level I thought it went REALLY downhill REALLY fast. All terror and atmosphere was lost at that point, and it became increasingly cliche. I did like the level where you fight Dagon on the boat, but that was the only part of the second half that I thought was good. The real problem was that it started getting buggier and buggier until I reached a number of game-stopping bugs, one of which I was eventually able to amend and the other of which I wasn't able to get past at all.
You know that part at the end where you're running through the caves while they explode? Yeah, it was literally impossible for me AND my brother, and we had different save files and both tried many times. I looked online to see if anyone else was having problems, and apparently loads of people couldn't get past it. It's no fault of the player--it's some glitch that prevents causes the player to die no matter WHAT he does at a certain point. Not everyone experiences it, but for those that do (most PC users, I think), it is basically impossible to complete the game. There is NO official patch (and not even an unofficial patch that fixes this bug), there are NO cheats and there is NO trainer to make the game playable. And no patch is coming because the developer went out of business. My opinion of the game had already gone downhill, but by that point I found it atrocious. What game doesn't allow its players to complete it?
As for being faithful, it's kinda faithful in some ways but not faithful at all in others. The first half of the game is total Lovecraft; some scenes play out almost exactly the same as they do in Shadow Over Innsmouth, such as when they first attack and you're running from room to room of the hotel, or when you bring the drunken guy some ale so he'll give you some clues as to what the hell is going on in that town. After that, the developers take some liberties. What's ironic is that the best part of Shadow Over Innsmouth isn't in the game (as far as I know, anyway, because I couldn't FINISH it), and that's at the end of the story where the visitor finds out that--wait, no, I'm not going to spoil it. Heheh.
Glad you enjoyed the game, though, and I can see where you're coming from. The chasing scenes were really well done.