As I'm reading IGN's interview with Peter Molyneux, I think about pets. No, not because Fable 2 has a dog. Pets come to mind because they demonstrate how personal something can be without verbal communication.
All a dog needs from you to respond accordingly is your face. Project Natal currently includes accurate enough facial recognition to distinguish one player from another, but I doubt it can detect all the subtle signs of emotion in a human face.
If a game publisher can create a camera system with that kind of accuracy at an affordable price, the sympathetic connection between players and game characters will be able to strengthen exponentially.