So, Old School Hack shines when it focuses on rules-lite, encouraging players to be awesome, and a permissive style. How does that look for a sanity system?
Here is my answer. Terror, Horror and Madness, sans dice and chart
In a nutshell, the design principle at work here is that sane players get their Awesome Points from the other players; they are all allies. Moments of insanity, and longer-term madness, shift allegiance to the DM as a direct source of Awesome Points! If you play to amuse the DM (even if frustrating the other players) then you still get your Awesome Points. This economic shift also discourages using madness (temporary or otherwise) to derail the game and hog the spotlight; if the DM gets tired of your antics, then NOBODY gives you Awesome Points.
What do you think?