Want Some Latin with Your Greek?

I am now writing a story -- it's actually kind of half-essay, half-story -- and will have to decide how to transliterate words in ancient Greek. The basic decision comes down to employing the spellings most common in English, which derive from Latin, or transliterating more literally the Greek alphabet. Olympus vs. Olympos, in other words; Hephaestus vs. Hephaistos.

My first impulse is to go with the Greek -- I am trying to evoke the experience of living in the Greek Age of the Gods, which should not be filtered through Roman recensions. This means emphasizing some distinctions most English readers do not really know about, like the fact that the Latin ligature æ is a transliteration of the Greek letters "ai" and should be pronounced with a long a rather than a long e. (The Latin ligature that should be pronounced with the long e is œ, as in œconomia and fœtus.)

This doesn't bother me, and certainly most readers have encountered spellings like "Hephaistos" and "daimon." But "ph" is itself a Latin creation, for that sound is rendered in Greek as one letter, phi. If you transliterate that properly as "f," you get words like Hefaistos, Fobos, and fallus, which I don't think readers will accept.