Hmm, that Lovecraft story sounds sort of like Shadow Over Innsmouth (with the fish creatures), but I don't clearly remember them getting skinned, but it's been quite a long time. Unless it's Dagon, but Dagon only has one character (the narrator) so it probably isn't. (And weirdly they based that Call of Cthulhu game mostly on SoI, rather than the actual Call of Cthulhu story for some reason.)
Ah, I just picked up most of the old Elric books on the cheap. I've never read Moorcock before. I've been in the mood for some classic Sword and Sorcery (hence reading Howard and I'm also going to get back into Fritz Leiber's Gray Mouser stories.)
You were right, that was it! Shadow Over Innsmouth! And you know what one of the first hits I found when searching for it was... http://www.youtube.com/watch?v=3tTHn2tHhcI God. I laughed so hard at that!

More horror stories should have comical musical versions.
Fritz Leiber is great I remember devouring those Fahfrd and The Grey Mouser stories until I could find no more to read and I still wanted more. I think I could reread them soon. Lankhmar always felt like such a palpable and ominous city. I love that tale when that take on the whole Thieves Guild. Those guys were so bad-arsed.
Enjoy the Elric Saga. It's pretty depressing at times, but I love it. I guess it has the appeal of a Tragedy like
Hamlet. "there is a certain providence in the fall of a sparrow." "if it be not now, yet it will come: the readiness is all."