I'm taking all of Gensokyo and it's Eastern fantasy flair and converting it into a Western steampunk shine. But that ruins the allure of it, you say? Nonsense. Steampunk and fantasy each have their respective charms. That said, accurately changing those charms is a right pain. But enough about that.
First up, locations and storylines. Steamsokyo is a sandbox RPG with an emphasis on exploration as well as completing the stories. Each of the locations of Gensokyo will have a primary storyline that will contain familiar faces and will give rewards upon completion. However, completing a storyline a certain way may have special rewards. For example, the primary storyline for the Scarlet Estate is "The Manor's Mysterious Mistress." Completing it nets a cool reward for everyone involved. But if a certain action is performed at a certain point, everyone involved will also obtain a secondary reward and a choice to embark on the Estate's secondary storyline.
Magic, do we still have it? The answer there is yes. Magic is a necessary part of several of the characters, so it still exists here, though in two varieties: Faith and Arcane. Faith is used by nuns, priests, ministers, etc. Reimu, who would be a nun (nuns in this settings have nowhere near as many restrictions as they do in real life) and thus would use Faith. Faith manifests in the form of wards and dispels created via holy talismans such as crosses. Arcane is used by witches and magicians. Marisa, being a witch, uses Arcane. Arcane relies on illusions and manipulations conjured via magic objects such as wands.
Technology is what the rest get. Rifles, muskets, knives, sabers, steam-powered power gauntlets etc. Are what are used by the rest. This may seem like a disadvantage, but Tech users can modify and upgrade their equipment. Have rifles that shoot lightning, knives that return when thrown, so on. Sakuya would be a tech user with her knives, this time being the aforementioned returning knives.
So then, how do the three even out? Think of it a bit like rock-paper-scissors. Faith has the advantage over Arcane due to being able to dispel Arcane's spells. Arcane is superior to Tech in that an Arcane user can confuse a Tech user with their illusions. Tech surpasses Faith due to wards against Arcane doing diddlysquat against physical attacks. Note that these are merely how the three balance out. Faith will not necessarily beat an Arcane every time, for example.
Onto characters. Every. Single. Character. Encounter that is part of Touhou canon will be converted to steampunk and NPCed unless someone requests to play that character. Before any of yeh harp on me about letting people play canon characters, remember that 90+% of every Touhou character's personality was developed by the fans. So I'd allow some leeway, but I'm still handling those requests like primed explosives. I'd also allow original characters as well.
Next up, character power levels. You know the god-like powers of a large chunk of Gensokyo residents that would make Vegeta crush his scouter with a cry? Kiss those good-bye. For balancing sakes, everyone is about equal in terms of actual combat strength. Also, due to setting being Western steampunk, the characters who are actually gods in Touhou's traditional setting are not gods here. Balancing, remember? They may be gods in title, but not in power.
And that's about it. Any questions?