Another method of character interaction in games involves
the use of minigames to simulate certain aspects of conversation. In The Elder Scrolls IV: Oblivion and Nancy Drew: The Deadly Secret of Olde World
Park, the player plays a minigame to improve the NPC's disposition, but any
dialogue produced during the minigame consists of stock phrases that simply serve
as feedback to the player's performance rather than giving any insight into the
character.
These minigames do affect the course of conversation, however, by
giving the NPC new responses to topics or opening up new avenues depending on
the result of the minigame.
In contrast, the minigames in Leisure Suit Larry: Magna Cum Laude take place during a conversation,
and dynamically affect its course. If the player makes a mistake in the
minigame, his avatar says something inappropriate that upsets the NPC, whereas
if the player continually performs well, Larry (the player character) impresses
the NPC, improving their relationship.
Of course, playing a minigame makes it
difficult for the player to pay full attention to the dialogue in this case, and
makes the ultimate result (pass or fail) relatively transparent.
Time Scheduling
While not a method of direct NPC interaction, Time
Scheduling systems are relevant to this article both due to their importance in
games centered around character interaction, such as Tokimeki Memorial, and because of the way they provide context and
relevance to NPC interactions.
In most games, the player chooses when and if to interact
with NPCs, but some games build the entire framework of their game around
managing time spent with different characters. Typically, these games take
place over a defined period of time, during which the player chooses their
activities. For example, in a given day, the player may choose to go to work at
the office in the morning, and spend time in the library building their
academic skills in the afternoon.
These decisions are important because of the limited time
scale. Usually, developing relationships plays a pivotal role in these games.
After initially meeting or learning about an NPC, the player has the option to
spend time with them.
Each time the player chooses to visit an NPC, their
relationship progresses. Often these encounters play out with Branching Dialogue,
giving the player an opportunity to deepen their relationship with the NPC
further.
The character interaction activities usually culminate in
some ultimate point in the relationship where the scripted sequences run out
and the player is considered to have "completed" the relationship, as
in the RPG title, Shin Megami Tensei:
Persona 3, or dialogue begins to repeat at the maximum disposition, such as
in the American-developed dating sim, Brooktown
High.

Atlus' Shin Megami Tensei:
Persona 3
Time Scheduling is effective in engaging a player with an
NPC because the act of repeatedly choosing the characters to spend time with
creates intrinsic value to the interactions. In the player's mind, if they
chose to interact with a given character, it must be because the character is
interesting. The player sees value in the interaction before it even starts.
The downside of this method is that it requires a large
number of NPCs to choose from in order for the player's choice to be relevant,
so developers must create NPCs and dialogues that the player does not necessarily
encounter during the course of the game.
Often scripted sequences play out the
same regardless of how much game time has passed between them, so it can be
strange for an NPC to refer to an event that may have happened months ago (the
last time the player chose to interact with them) as if it were just yesterday,
exposing the limits of interactivity.
Conclusion
Considering the potential market for games that play like
interactive television dramas or sitcoms, it is likely only a matter of time
until the Western games industry hits upon a recipe for a wildly successful
game based almost entirely around character interactions.

Microsoft/BioWare's Mass Effect
Games like Mass Effect and Star Wars: Knights of the Old Republic have proven that there is
definitely an interest in extensive NPC interaction gameplay, and the surprise
success of the Phoenix Wright series
has shown that gamers are even ready for the visual novel.
By taking cues from
past techniques, NPC relationships in the games of tomorrow have the
opportunity to be deeper and more immersive than ever before.
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ELIZA screenshot courtesy of Wikipedia.