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 someone befriends an animal, s/he obtains the ability to unite their souls together and take on the form of that animal as well as its abilities. S/he also gain some properties of that animal even when they are no keener t transformed, such as resistence to cold or senses. If s/he really wants to s/he can half transforms taking on characteristics of the animal and their normal form