Personally, if magic is to be included, then I vote that it be:

A) Extremely subtle and difficult to pin down, and...

B) Only found in the hands of NPCs.

That way you ([@Partisan]) can include Grimm's Fairy Tales, Slavic and Central Asian folklore and superstition, and that type of stuff in the story, and the PCs are left to wonder how much of it's legit and how much of is just them letting their nerves get to them.