The Rathskeller definitely is lacking in atmosphere. Unless you call someone's musty, old basement atmosphere. However, this place is tradition at Penn State. Alumni and students gather here often to see local bands and of course to drink cases of Rolling Rock ponies. It's tradition!
If you go for lunch, however, you will get excellent food from Spats, the New Orleons style restaurant upstairs, for a fraction of the cost. So, if you can stand the atmophere, go for it!