Maybe for our characters, there could be a mixture? They start mentally degrading, but once the epidemic really starts to spread some may stabilize in the face of tragedy, like some people do. They stay away from the uninfected humans and fight the monsters as well. Would definitely lead to some interesting posts I think.

[quote=@MiddleEarthRoze]
Gradual change on top of full on monsters would be cool. It would be awesome roleplaying the transition, if you were unlucky enough to be bitten/scratched/whatever. It would also be interesting to see how the characters react to losing their humanity. Would they keep hold of it for as long as possible and help the survivors? Or would they give in and embrace their inner monster? Decisions, decisions...
[/quote]

But I really like this idea too. It would be be very dramatic, degrading our characters' mindsets the more they changed into their monster forms. So I'm leaning towards your second option.