Storytron

A new idea in interactive story telling, storytron may become a successful way of creating more interesting, more dynamic computer games.
http://www.storytron.com

Here is a clip from their overview:

Storytronics - Lots of Both Story and Interactivity

Even though Storytronics has the strengths of both the previously described methods[branching narrative & narrative games], and the weaknesses of neither, it is not "the best of both worlds" - it is a radically new paradigm that redefines everything. The basic concept in Storytronics is that interactive storytelling is first an interactive experience - that is, it is not an experience where the player's main role is to read text or watch footage, sometimes getting the attractive opportunity to "choose the lesser of two evils". It is an experience where the player has volition, and is at liberty not merely to choose between narrative possibilities, but to behave in whichever way he or she likes, thus freely directing the course of the drama. The computer-controlled characters, likewise, behave according to their unique personalities, reacting dynamically to the player's behavior.

This is made possible using the concept of the Verb. Storytronics uses Verbs to define what may happen in interactive storytelling. Each Verb represents one possible dramatic action, like a kiss, a demand, or an advice. Once a Verb has been defined, it may be used indefinitely. For example, once a single Verb Kiss is defined, any character will be able to kiss any other. Depending on the context and the Adverb used, this kiss could also mean several different things, from a friendly greeting to a statement of reverence to a passionate lovemaking, or even a murderous act (think Judas). When more than a thousand Verbs are used together, the richness of possible behaviors stretches across horizons. When each Verb also defines what kinds of consequences it has and what reactions it may warrant, these possibilities can be organized into complex cause-and-effect relationships that allow the interaction to maintain a coherent and narrative form, no matter how adventurous the player's behavior.