It's really a matter of tone. Fritz Leiber could do it at will. Steven Brust pulled it off a couple times, with the Phoenix Guards. Kim Newman with Anno Dracula. Elizabeth Willey came close with A Sorcerer and A Gentleman, Brian Aldiss did manage it once with Malacia Tapestry. I can't think of many others. Kage Baker's recent short story collection, Mother Aegypt, takes that style of floating, pure enchantment and does wonderful things with it. The stories range from pulpy to modern to almost SFnal, but in almost every case, the tone is dead on.
Especially delightful with Baker's stories is the way she slowly reveals more and more of the surroundings or the true genre of the tale; you may think you are reading an urban fantasy when you discover that it's really a faerie kidnapping. A childish fantasy can turn into a revenge tale, and a dissipated youthful gentleman may turn out to have a rather unexpected family.
While Kage always writes with a sly wink, she also provides warmth and flawed characters who are completely lovable, such as the greedy, lustful hero of the title story, a man who falls in love with what he thinks is a gypsy fortune teller, but is (obviously to everyone else) something perhaps best left alone. A very, very fine collection for anyone who loves smart fantasy.