I'm with Capntastic.
Not with his ideas, but with the fact that this whole thread is the opposite of what Toady has in mind.
NPC's will have their own lives, they will live out those lives with day to day jobs, chores, wants and needs and when need be will ask other NPC's to help with there wants and needs, they will react to the NPC's around them and interesting things will happen within these parameters.
What, I gather, wont happen and what toady doesn't want from what he has said, is pre-set story lines, at any level. The game wont realise you got mugged by a certain mugger, and then set up an instance so that you will meet him and he will kill himself. The game will allow NPC's to do illeagal acts, the game will allow two acquainted NPC's to recognise each other, the game will give NPC's options in response to the situations they procedurally meet.
These procedural instances, points of interest, events are in no way scripted, an NPC will get mugged and a million times nothing will come of it, a few times something might but none of it will be pre-determined and for all intents and purposes the Player is just another NPC.
Why? Making one story line is relatively easy, while procedurally generating a world detailed enough for procedural events to be allowed to occur is hard, However, making a number of story lines which play out in a procedurally built world that are varied enough to not become predictable is damn near impossible, and a fate system like Ive seen suggested in this thread, where the game will pick up on possible story lines, and spawn things for them to play out in a procedural environment is ludicrous, not just the when A and B is met, but what your asking, an over arching system of storylines which is different 100% of the time.
Fate should never be assumed to be at work when Chaos would explain it. Fate should never be used when Chaos will supply it. Chaos within parameters is a powerful force, and is how we and everything around us has come to be with all the infinate possibilies, story lines, and events that happen in our lives. Why restrict that with a fate system when the game already runs chaotically, procedurally.