Writing in video games sucks for a lot of reasons.
Reason 1: They keep giving the writing job to "the guy who can spell."
Reason 2: People forget that games are a series of interactions, and dialog isn't interactive. Not even dialog trees are interactive, sorry. The game is the interactions, and making the player stop interacting in order to experience your story is doing a disservice to the game and to the story.
The best game writing is the stuff you discover as part of the game, because you want to find out more. The most recent experience I can think of came in the game Psychonauts, where I found a hidden door in the mind of a generally happy lady (Her theme is a dance party!) that contained a memory of the past -- and her nightmares. Suddenly I was able to discover my own context for her and come to a new understanding of the character, and it was done just through my poking around in a hidden part of the level. Not only did it enhance the story, it felt like something I did on my own. That's the cool thing.
Incidentally, Erik Wolpaw (who wrote most of Portal) was a writer on the excellent game Psychonauts. Every American has a duty to go purchase this excellent game from the XBox Live Marketplace.