Most games guide you neatly through a bunch of hoops; you create your own experience, but not your own story or anything like it, in most cases. This isn't necessarily a bad thing; the experience of playing a game like Journey is very rewarding, even emotionally engaging. But you discover the story rather than create it nonetheless, it's just not as linear as heavily scripted games.

Games are an interesting storytelling medium, but stories are much more than variations on the order in which plot points are hit. The biggest issue is motivation - why characters (maybe including you) act as they do. In most free-range videogames the characters are very transactional; they want something and enlist the player to get/do something. In turn, players collect items or set game flags that allow them to defeat antagonists in contests of skill or force. But it's not really practical to interact with characters by appealing to love, greed, loyalty, arrogance etc. in order to motivate them to behave differently, so videogame stories can't do dramatic comedy or tragedy at present, although you can of course have slapstick or situational comedy, and you can have sadness or gloom. But the general lack of permadeath and the reflexive nature of AI are still a limitation.

>But it's not really practical to interact with characters by appealing to love, greed, loyalty, arrogance etc. in order to motivate them to behave differently

You can do something like that in Deus Ex: Human Revolution. You can have a cybernetic augmentation that lets you read microexpresions and do voice analysis. Then it tells you if the character you are talking to is more likely to be persuaded by flattery, assertiveness, bribery, intimidation and so on.

It ends up being little more than a gimmick, because being a modern high-budget game with impressive actors (they do good voices and their face expressions are so realistic that you don't need that cybernetic augmentation if you know how to read expressions in real life), it would be too expensive to have the kind of huge conversation trees that old style text-based computer games have.

Quite so. I have some ideas about how to do it but they're pretty abstract and I'm not sure you could offer the sort of consistent gameplay experience that AAA titles are offering to players, os the first games to do this successfully will likely be commercial failures.