Game legend Peter Molyneux OBE has been interviewed by New Scientist, discussing attempts to simulate emotion in video games.  An extract of which can be seen on YouTube.

Molyneux, founder of Lionhead Studios and the man who, for all intents and purposes, invented the 'God' game, discusses with New Scientist attempts to generate genuine emotion between gamers and in-game characters.  Molyneux, famous for pioneering AI in games, has a track record of developing innovations in gameplay.  Take a look at the clip, it's well worth it.

My favorite Molyneux-influenced game has to be the cyberpunk classic Syndicate series.  But then I may have fallen foul of Peter's Persuadertron.