I think for radiation to work well, it needs to be,
a) Dangerous. Radiation in Fallout 3 was a joke -- you could fill up your entire health bar drinking from a toilet and then either pop one of your nine dozen radaways, or just quicktravel back to your apartment and use the robo-doc to cure you.
b) A choice. A risk. If it's just omni-present, and the solution ends up being that you have to go back to town every X hours and pay a doc / buy some radaway to cure you, then that's dull and tedious. By the same token, if it's just limited to pools of toxic waste on the ground, well then again, that's a bit of a snoozefest since you just don't step in them. One of the best implementations of radiation in the original fallout games I felt was the centaurs, who'd irradiate you when they hit you. I think that sort of thing is interesting, where you can avoid radiation by avoiding a monster's attacks, or killing it a certain way. By ignoring that, you can kill the monster more quickly / efficiently, but you have to balance that with your radiation intake.
c) Curable / reversible. Mutations could potentially be very cool, but if you're going to make me grow an extra hand out the back of my neck, you'd also better let me amputate it
Maybe you'll sit and sigh, wishing that I were near
Then maybe you'll ask me to come back again
And maybe I'll say "Maybe"