I think 'VSF' can cope with some fantastical things; I'm very Steampunk myself, it needs airships and dinosaurs and mad inventors and Ruritania and Atlantis and Martians and aetheric weapons and preferably Time Travellers in Blue Boxes and Sherlock Holmes and sometimes Blasphemous Cyclopean and Eldritch Beings of No Human Aspect, if I can get away with it. Atlantean Morlocks (with beards) in the British Army? Yeah, why not?
But my rule is to try to make the 'crazy' things seem normal, so you can be a bit weirder with the 'normal' things.
Someone once gave me a tip about modelling alien plants - it was that you can have a plant that's a 'normal' shape but weird colours and it looks alien (like an orange-coloured twig for a martian tree, say); or you can have a plant that's a weird shape but normal colours and it looks alien (like brownish-grey dodecahedrons with little green bits); but if you have a plant that weird colours and a weird shape no-one will know what it is. Hmmm, some orange dodecahedrons... are they some kind of rock?
I try to stick to a similar principle with stuff like this. Dwarves in Pith helmets? Paint them as proper British Redcoats; everyone can see what they are.
Normal British Zulu Wars minis? Paint them green (maybe they're a Rifle Regiment?) and give their sergeant a Galvanic Projector - then they can be UNIT: 1891.
Every bit of weirdness I think should be balanced by enough bits of reality that you're not just totally making it up - otherwise, you might as well put bits of cotton wool down and say 'Professor McMad has invented an organised gas weapon... here are my troops, those large ones at the back are Gaseous Cavalry. And the things that look like upturned yoghurt pots are hovering cloud factories... no I don't know how they work'.
Obviously, one could do that, but how could anyone tell it was Victorian? That's where the red coats and Glengarries and Pickelhaube and whatnot come in. A few visual signals to tie it down. That's why if I ever get round to using my GW tanks and walkers in a game, I'm going to make damned sure they're all flying big British ensigns. Just so people know.