Utterly Mad

The funny thing is, Cthulhu is a fairly minor power in Lovecraft. He showed up directly in only one story. Lovecraft himself titled his work "The Yog-Sothoth Cycle", because Yog Sothoth was a much bigger player than Cthulhu. Also, if you are doing Shoggoths as a black screen portion, why not have the Colours Out Of Space appear as a massive graphical cluster****, like trying to render all colors at the same time.
The Poe style protagonist would be a better choice, as a lot of Lovecrafts protagonists were crazy, narrow minded, and horribly Xenophobic to begin with. Just going with a depressed crazy guy might be better. Also, cats have to show up, because Lovecraft loved cats.

Maybe the protagonist could be a mix of both, moving to the country to both get away from people and maybe to discover a purpose for himself (which ultimately gives him the shaft). The Colors Out Of Space would have to do some serious ""DAMAGE"" to your screen to make it look like your graphics card is screwing up. Maybe cats could symbolize safe places, or maybe you can have a pet cat that you carry around with you.

Also I was thinking about having it set somewhere in the modern day, since placing it back in the 20s or 30s might be too much of a dead give away. [[Also keep the protag silent, maybe pull an Artyom where he only "speaks" through notes or diary entries that get written the more you discover.]]