There is definitely not any law that would restrict your ability to put a public domain character in a completely different setting...modern setting future setting, or whatever. As long as your story isn't too much of a rip off of another copyrighted story, the setting can be any time or place you wish. Heck, in comics, you can pretty much rip off copyrighted stories anyway, as long as it's slightly different.
There are only a few instances where you can reprint stories featuring a certain character, but you can't use the character itself. I think the old Superman cartoons/radio shows and the old Captain Marvel and Green Hornet comics would be examples of works you may be able to reprint, but you can't create derivative works of any of the characters that were copyrighted in an earlier work. Yeah, those characters, I wouldn't touch.
Golden, you are free to use the characters as they are or completely change them. It's up to you and what you want to do with them.