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(Crossposted from my blog at http://problemmachine.wordpress.com)

He also programmed robots to write books and magazines and newspapers for you, and television and radio shows, and stage shows, and films. They wrote songs for you. The Creator of the Universe had them invent hundreds of religions, so that you would have plenty to choose among. He had them kill each other by the millions, for this purpose only: that you be amazed. They have committed every possible atrocity, and every possible kindness unfeelingly, automatically, inevitably, to get a reaction from

The above passage is quoted from Kurt Vonnegut's novel Breakfast of Champions. This is actually from a story within the story, a science fiction novel, and when Dwayne Hoover, a man suffering from increasingly severe mental illness, reads it, he takes its word as literal truth and goes on a violent rampage.
This provides an interesting counterpoint against most video games, which often go to extreme lengths to convince us that the world they take place in is a real place full of real people and then hand us the gun and tell us to rampage. It's rather funny that video games have constructed for us a sub-world where solipsism is literally and demonstrably true, where we really are the only sentient entity in the world (almost certainly) and therefore anything we do is ethically defensible, but the implications of our desire for such a world are perhaps, at times, troubling.
Of course, it's debatable whether that's actually what we want, or if human forms are just a nice intuitive way to skin the challenges we require of our games. There is, much of the time, no fundamental difference between an archer and an arrow trap, and maybe we kill the archer or maybe we disarm the trap. These are often arbitrary decisions, a mere aesthetic layer over the challenge, but these aesthetic choices can have a real impact on the way the game is received by the player.
In other words, what your game is about is important. The setting, tone, atmosphere, aesthetic, whatever, all provide context for the actions we take within a game, and sometimes the easy solution of making everything which opposes us into an 'enemy' can lead to, uh, basically a playground full of simulated meat toys for us to slaughter.
I ain't saying Jack Thompson was right, but there's a reason he stuck with his dumbass crusade for so long. Without a gamer's context, without the understanding that these characters are really just a presentational layer, without knowing that the slaughter of simulated people isn't actually the main draw: That shit is mad creepy.

- NOT IN MY BACK YARD
It's not like this is an impossible conundrum to resolve, it's more that most designers don't seem to really try. One easy way to avoid these creepy solipsist worlds is to remove all NPCs from the game completely– a step which seems drastic, but can result in very powerful and unified experiences: Myst, Shadow of the Colossus, Journey, Braid...
Games do loneliness very well.
There is an honesty to lonely games, to being in a world apart from a world and doing things far apart from everything else. It feels safe sometimes, and profound sometimes, to know that we are in a pocket world where nothing we do can have any effect. It can be honest, and sad, and beautiful...
But I think it would become tedious if the only games were lonely games. The Walking Dead provides an interesting solution to the problem of players gaming NPCs: The characters in that game are as artificially constructed as the characters in any game, and hypothetically the player would be just as motivated to manipulate them to achieve her goals as she would be in any other game, except– The way the game is framed, one of the main goals the player has is the welfare of those very same NPCs. If something bad happens to one of them, it feels like a failure on our part– even if, as is often the case, there was nothing we could do.
This is an interesting approach. Very few games have this kind of intimate personal motivation, most focusing either on survival or some grand and distant goal which is tangentially related to people as a concept but not to any persons in specific. It's particularly interesting because it's so goddamn obvious and yet so goddamn rare.
If developers want us to care about their characters, why is this never reflected in the stated goals of the game? Or in the mechanics of the game? Or anywhere except for in a crappy cookie cutter cutscene that establishes some basic character traits a little while before the character dies?
Multiplayer games are not as innately solipsistic in their outlook as most single-player games: We do know there is another person on the other end and that they are controlling their game avatar. However, most online games make it extremely easy to forget this fact.

- This is also basically most people on television I think
Here's a question to consider: How do single-player games prime us for the way we interact with multi-player games? The moment-to-moment gameplay between the two game types is identical, but one is filled with actual human beings and the other is filled with animatronic piñatas. One is sanded down and made as painless and empowering as possible, the other has to balance each player's empowerment and comfort against each others'. How much of our behavior in multi-player games is shaped by the 'training' that single-player provides?
This is a question primarily aimed at competitive games, though it has some applicability to cooperative as well. Certainly I'm sure some of the rage built up towards crappy escort missions over the years has been unleashed onto more than one poor Left 4 Dead newbie's unsuspecting head.
It's worth examining the role that NPCs play in your world, their function, their meaning, and how you're asking the player to regard them. And, for multi-player games, it's worth examining how you present the players to each other as well, since it's very easy to make us dehumanize and objectify each other: We've been doing it for a while.
Or, if nothing else, maybe at least consider acknowledging that the way these characters are treated is, hey, a little fucked up.

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My favorite game? A single player game where you nurture friendships with people in order to make you stronger at fighting people's repressed psyches in a TV world.
And try that niceness skill line on a child being kind to a stuffed animal. That'll show 'em the limits of their underdeveloped feeling!
Not to say that people don't sometimes do so anyway-- people interact with imaginary entities in all sorts of ways, as Justin's stuffed animal example illustrates, or as a google search for nearly any character name with safesearch off illustrates much more luridly.
One where you build up friendships with your classmates and learn alchemy so you can graduate from your alchemy school, and ultimately face up to what you really are. (Mana Khemia)
A game where you possess other characters and follow them around the castle to search for who the culprit was that ate your boss's pudding. (Disgaea Infinite)
A game where you explore and find ingredients to learn alchemy, doing favors for your friends and people around town so that the kingdom doesn't close down your alchemy shop (Atelier Rorona) (And there's 4-5 other Atelier games out in the US that have similar themes.)
A game where during the day, you try to work out your relationship between two women, and during the night avoid dying while in a strange dream world where everyone has turned into sheep and climb the tower to the top. (Catherine)
I could go on...
Singleplayer is an escape from that , and enables a more immersive experience. Multiplayer games usually ruin this very factor, and much of this 'social' interaction ends up only becoming more frustrating than it's worth. Case in point: the overwhelming majority of "muhmorpugers" have no lasting consequence or ramifications to your quest story decisions. It seriously takes away from the impact of working your way up to defeating an ultra-difficult boss in your character's story when you see the same enemy respawn fresh not ten minutes later in the same area.