opinion

[Dr. Scary]

Could also try to check out these movies (if you haven't already):

The Bunker(!) - I've seen this and it's fairly OK.
The Keep - Haven't seen it, but IMDb says it's similar.

[Ali]

When doing a horror story suspension of disbelief is very important. Using existing folklore IMHO could be much more exciting, especially when the player already knows this legend.
Recognition triggers an involvement which a new story cannot.

Whether or not this beast actually existed is besides the point.

You're absolutely right. All I meant to say was that Werhwolf could also incorporate the genuine mystery of the beast's existence into his story as an added layer of intrigue.