Parts 2 and 3 are up.
I think Radical Entertainment's Matt Armstrong summed it up nicely:
"The greatest challenge to storytelling in gaming is the player's mindset. When you watch a movie or read a book, you're putting yourself into a very receptive frame of mind where you make the conscious decision to sit back, relax and process the narrative that's being presented to you. Players make a very different commitment when playing a video game – the adrenaline and endorphins are flowing and the player's motivation is centred around overcoming whatever challenges are presented to them by the game. The end result is that people engaged in playing a game are less receptive to long exposition, which, in turn, limits the scope of the story that can be told without totally losing the player's interest and attention."
David Cage also had some interesting things to say:
"The main problem is that you don't control the main protagonist of your story, but at the same time, you need to anticipate what he will want to do so you can produce the required assets. My trick to do this is to create a situation providing a clear context for choices. By doing this, you limit the options of the player to what makes sense in the context. He has the feeling that the game allowed him to do whatever he wanted, although in fact he only did what was logical in the context. These options were limited enough so you could anticipate them and implement them.
Everything is about creating invisible boundaries where the player is free to do whatever he wants. If the boundaries are too tight, the experience is linear and boring, if they are too large, there are too many options, your player will get lost and you will have a lot of assets to produce that very few players will see. The challenge is to find the right balance to make the journey look like a free ride although you, as the writer, were always in control."
It's one of the biggest challenges for developers, coming up with a good story is hard by itself, but putting it into a game in a way that feels natural is a huge challenge.
I was hoping they would ask these developers what they consider to be the best videogame stories ever, some really interesting answers here. A lot of them picked ICO while Ueda picked HL2.
Personally, I think the witcher games, specially TW2, completely redefined what storytelling in games is about, it's in a league of its own as far as I'm concerned.