[j. d. worthington]

Actually, Lovecraft (at least according to his writings) thought that his father had suffered a stroke which left him paralyzed. Winfield Scott Lovecraft did, in fact, go insane -- the diagnosis was "general paralysis of the insane" or "paresis", and it is almost certain that he suffered from tertiary syphillis. (M. Eileen McNamara wrote an article for Lovecraft Studies on the subject, also reproducing WSL's medical records from Butler Hospital. It makes genuinely chilling (and heart-breaking) reading.

As for the "terrible old man" type (or archetype) in his fiction... there has been a fair amount of work on this aspect of things, from passages in Robert Waugh's The Monster in the Mirror to Carl Buchanan's "'The Terrible Old Man': A Myth of the Devouring Father" (Lovecraft Studies #29) and Richard Ward's "In Search of the Dread Ancestor: M. R. James' 'Count Magnus' and Lovecraft's The Case of Charles Dexter Ward" (Lovecraft Studies #36); as well as passages in some of Donald Burleson's and (if I recall correctly) Peter Cannon's books. There are others as well, but these are the main ones which spring to mind....

Incidentally, I don't see the shoggoth as emerging only from that; as others have pointed out, part of the impetus for the shoggoth as we know it is Smith's story, "The Tale of Satampra Zeiros", which introduced Tsathoggua, and which also had that particular deity as a rather plastic entity strongly reminiscent of the shoggoth. This was incorporated into HPL's revision, "The Mound", albeit as a detail rather than a main motif... so, again, these concepts began to take form from many sources, and only gradually assumed the shape we recognize today....