I would probably say that maybe the problem is not that the setting isn't working, but that the setting doesn't show because the setting "is in the details" which, I may add, are not exactly a prominent part of the outline.
As for the steampunk element, this will come into the story gradually. In fact, I'd say that perhaps the steampunk isn't a 'natural' part of the setting at all. In the beginning, this feels like a pure renaissance era. After one of the most literal versions of 'all hell breaks loose', humans are forced to adapt. They need to be better, stronger, and have easier ways of communication. They begin to toy around with the working of machinery, with help from some neighborly immortals.
Even all of this doesn't quite describe the world that I have envisioned, or the overarching story that takes place. The story has 3 MAJOR parts:
1) The initial disaster, the unraveling of the true scheme (why the demon took the artifact, where he is going, what he plans to do with it)
2) The breaking of the two realities and what happens when they collapse into one (mortals and immortals are now on the same phase of reality)
3) The Final Confrontations.
In a different light those 3 could be also envisioned as:
1) Man + Fallen Immortal vs The Possessed +Fallen Immortals
2) The Fall of Man & Man + Immortal vs Man + Immortal
3) The continuation and finale of Man + Immortal vs Man + Immortal
In stage 1, there will not be a whole lot of steam punk, because Man is still weak. Man does not understand the danger it is in as a society. In stage 2, Man falls, still weak and surviving only with the help or tyranny of its immortal brethren. In stage 3, they are ready to stand toe to toe and shoulder to shoulder with the immortal armies.
That leaves a LOT of story to be told, and with the type of gameplay that I think would fit the style of storytelling (that being First Person Action Adventure with horror elements), would probably require each section be its own story, whether this comes together as a game or a book. I don't know, me being such a fantasy/RPG lover has really made me like Renaissance era. Its a good cross between swords and guns, and the variety that it can bring to a game is often times quite refreshing. Also, this is when the mysteries of science really began to culminate as a field, and there was such a view of awe and creativity at the time its easy to see something like machinated wings being invented. Perhaps that's just me.
Once again, feedback/comments on anything I've said is encouraged. I like discussing.