The book was a complete rip off of Clive Barker's 1988 novella, Cabal. Cabal was made into the movie Nightbreed in 1990.
For those unfamiliar, Cabal is based in a world where monsters exist. These monsters posses different abilities and vary in their bestial appearance. Some creatures are able to pass among humans while others are too grotesque. A great creature calling itself Baphomet sends dreams to the monsters and guides them to the cemetery sanctuary known as Midian. Barker puts a spin on the novella in that the monsters are the good guys. They are hunted, abused, and murdered by the terrible human slayers.
It's odd that Nightspawn shared it's name and theme with Cabal - yet it was Todd McFarlane, who, worried that he might miss a dollar, sued Palladium and forced them to change the name from Nightspawn to Nightbane.
To recap: Palladium Games rips off Clive Barker's novella Cabal and makes a game called Nightspawn. Todd McFarlane thinks the system is trying to steal the change out of his couch cushions and sues Palladium to change the name from Nightspawn to Nightbane.
I'm not sure why Palladium didn't just go ahead and change the name to Nightbreed at that point.
I think with a website named Geexplosion, it should come as no surprise that much time was