A standard roleplaying environment: the tavern. This is another easy one to create in your own home, providing you have a large enough group of roleplaying friends. Let us assume your PC group is no larger than five, and that the rest of your friends can be NPCs. Let us also aim for an exceptionally seedy and unscrupulous city tavern.
In a good LARP it is desirable to separate the players out individually at some stage, because they are more suggestible and afraid when they are alone. Some form of individual challenge is probably the best way of doing this. One possible setting for this is a cave system, and it is probably one of the easiest to recreate realistically, and one of the most perfect for playing on fears of claustrophobia and darkness.
When running a new party, get around the question of plot density by having the first discovery to be a deck of fate, or whatever you call it. If you use a real deck, you should definitely stack it to have the desired outcome, which is to curse the party to attract weird things to happen and involve them. This should not be told to the players at the time, so that they won't just up and try to get themselves 'decursed'. Though quite why they would want to is beyond me.