Gamasutra - Defining Dialogue Systems

Defining Dialogue Systems is a new feature piece at Gamasutra written by Brent Ellison, who is apparently a Master's student finishing up a thesis on NPC interaction.  The article does as it says, cataloguing the different types of dialogue and interaction systems across a range of games, from Mass Effect to The Sims to Japanese dating sims.  Although it discusses the merits of the different approaches, it provides limited insight into possible advances.  Here's a snip:

The recent Mass Effect makes similar attempts at simplifying the presentation of the player's choices, but rather than limit the player's response time, it gives the player his options before the NPC finishes speaking. In this manner, the player makes his decision and the avatar delivers a response with little to no pause in the conversation.

Thus, both Indigo Prophecy and Mass Effect attempt to make conversations more natural by reducing the amount of time and effort the player spends considering their next response.

Although the heavily scripted nature of branching dialogue allows designers and writers to craft natural, flowing conversations, the limited nature of interactivity is very transparent to the player.

It is easy for players to see that they are simply choosing from paths laid out for them, rather than creating their own story. Further, players may be frustrated that they must follow such a straightforward path and cannot choose to inquire about certain topics. The Hub-and-Spokes Dialogue method addresses some of these problems.