I might suggest you're just looking in the wrong places. Reactive AI partners might be far away, but many characters in Assault on Dark Athena, for example, are enormously compelling. I could have watched Dacher act all day. I've also had the same reaction, believe it or not, to a few characters in Heavenly Sword (a game which is slowly convincing me that anti-Japan critics are also looking in the wrong place).

Of course, there's a difference between a character who is written and acted well in cut-scenes, and a character who acts like a real person during gameplay. Even so, the former can keep me enthralled with a game for a long time (see any Blizzard game pre-WoW).

@MikeBBetts:

While I don't disagree that there's some decent writing happening in videogames, the point I'm trying to make is that these experiences are basically all scripted. The most interesting and exciting thing about videogames is that they can go far beyond the sort of character experience we can get from a movie, or even from a book. Having decent dialog and plotting in cinematics or in-game scripted sequences is certainly important, but in the long run far less compelling than it would be if, each time you played the game, characters were able to change, grow, and react based on your actions, the actions of other NPC's, and their surroundings.

We can do a lot better than just simulating movies.

Great article - I think this is one of the things Far Cry 2 achieved. Though the characters were generally poorly acted and had an extremely barebones "character background" - which is to say, they had little in the way of pre-scripting - the reaction and interaction between the player and the other characters is what sold them. You would actually develop relationships with other characters through gameplay events that are not pre-scripted but are built into the game system. For example, one of your buddies will always come and save you when you die, in a game mechanic not dissimilar to BioShock's Vita Chambers. However once one particular buddy saves you multiple times, and you fight alongside them and complete missions with them enough times, you start to feel a relationship or even loyalty with them. The relevant factor though is that the buddies that appear in your game are chosen randomly, they are not prescripted into the narrative, and a player's actions in the game will cause different buddies to rise and fall in importance to the narrative. So it is through the game system, through reaction and interaction, and through the player's own empathy and anthropomorphism of the AIs, that these characters and relationships are built. In the future this technique could be further developed by giving each AI a personality matrix ala The Sims which causes them to react to events in a way that still defines themselves as a character without being pre-scripted by a writer.