The panel included Tim Schafer of Double Fine Studios (hard at work on the unique game Psychonauts, perhaps better remembered for classics like Grim Fandango and Full Throttle), as well as Warren Spector (the industry veteran responsible for Deus Ex and others.) Rounding out the executive side of the discussion was Neil Young, VP and General Manager of Electronic Arts LA. Neil has been the driving force behind the Lord of the Rings games, the Medal of Honor franchise, and more. A good mix of talent was present.

From left to right: Moderator Andrew Stern, Tim Schafer, Neil Young, and Warren Spector.
Skillfully orchestrating the panel was Andrew Stern of InteractiveStory.net, who took a very vague topic and framed it in such a way that really cut to the heart of the matter. (Afterwards, the issues people talked about spilled out into the hallway and presumably continued to be discussed throughout the rest of the show.) Specifically, Stern told the panel not to try to define the word 'story' or what it means for games, but rather to "Identify the specific qualities or pleasure that we get out of stories that we don't currently have in games."
For example, a lot of games have a solitary hero who saves the world, but few titles look at the relationships between individuals. What about personal conflict? Feelings, relationships? Should games be doing this, and if so, why aren't we? The panel kicked off!
Question 1: What are the Most Important Qualities of Stories?
Warren Spector said that there were a couple of major elements that stories bring about. The first is genuine human interaction. He admits that the game industry has made great strides with making more believable characters, but that they're still 'cardboard cutouts' compared to what's available in other media. He also thinks that empathy is a key element of storytelling. "I want to feel what they're feeling," he says. He suggests that maybe we don't feel more for videogame characters because it's such a "narcissistic medium," where the players see every NPC as an obstacle.
Spector also pointed out that games need inherent victory conditions. He wondered aloud if that need for a victory condition hurts the storytelling aspect of games. He also speculated that inner conflict has no clear inners or losers or victory conditions, so it isn't 'fun' as a game mechanic, and that's possibly why we're not seeing deeper stories or characters in games.