The subject of storytelling in games comes up quite a lot - most notably in a recent blog post - and it can occasionally be used as a weapon in the "are video games art" argument, too.
And for what it's worth, I think games can tell a good story; I'd hold up examples such as Star Control II, Fatal Frame, X-Com, GTA:VC, Conker's Bad Fur Day, Batman: Arkham Asylum, Psychonauts...
However, I think there's an issue with the way stories are often told in games: they're either rammed down player's throats via cut-scenes and heavy amounts of text/dialog, or they're clumsily unveiled through "environmental" set-pieces: chuntering NPCs [*], overheard conversations and mysteriously scattered pages from a diary.
To be fair, these systems can work in games where there's no time pressure, such as in a turn-based RPG. However, for most real-time games, these systems fail miserably for a simple reason: the player's focus is on the gameplay.
In fact, there's a very simple and apt analogy for this issue: driving.
Imagine you're sitting in a car and driving to a destination several hundred miles away. There's a manual gearbox, so you have to watch the revs and change gears. You don't know the route, so you have to keep one eye on your GPS system (unless you're old-school and have a map spread out on the passenger seat) and it involves a mix of roads - highways, country lanes, passing through busy towns, so you're constantly having to change speeds, change lanes, stop at junctions and interact with other drivers.
Now, how much attention can you spare, for a story? The answer is not much - anything visual (e.g. a film) is pretty much out of the question, unless you want to find yourself crashing into the back of the car in front. Even listening can be difficult: plenty of studies show that driving performance significantly degrades when the driver is trying to multitask.
Equally, when you're driving through a town, do you want to have to pull over for a few minutes, so you can listen to a potted history of the town hall? When you pull into a drive-through for food, do you want to hear a poetry recital? Or do you just want to get your food and drive on?
At this point, I think I'm starting to stretch the analogy a little too far, so it's time to park the metaphysical car and get out for a stretch. But hopefully, it's gotten the point across: the story in a realtime video-game needs to be carefully designed to avoid an impact to the gameplay. Personally, I'd tend to suggest the following for a real-time game:
Admittedly, there's plenty of examples where these rules have been successfully broken - or even examples where these rules don't work or are too limiting. But hey: if it were easy, then everyone would be doing it...
[*] I especially enjoyed Charlie Brooker's rant about Wolfenstein's humourless resistance force; after all, who hasn't started jumping around and/or trying to shoot droning NPCs while waiting to be allowed to move to the next chapter? Who really cares what they're saying?