Oooh, campaign idea stolen! I'm definitely going to try and implement this for 4.0.
My two cents on how to instill fear: talk to a player beforehand and tell him to make two characters, one main and one expendable. Have the expendable character be with the party initially without the rest of the group's knowledge, then have a zombie bite that character and turn him into a zombie. The other players will be freaked out, thinking that anyone that is bitten will immediately turn into a zombie, and now has to confront someone that was previously their friend.
The player who's character is now a zombie can then just use his main, and the DM reintegrate him into the story.
What I want to happen:
Players: Damn, Bob's character just got bit. How much damage does he take?
DM: Not so fast. Bob, you're going to have to tell me your Fort defense.
Bob: Okay, it's X.
DM: Yeah, you're a zombie now. Give me your character sheet and reroll.
DM: Oh, and Bob's character is now trying to eat your brains. Actions, guys?
Players:... Run away!