The man behind The Sims, Will Wright, places narrative controls back in the hands of gamers.
From a design viewpoint the dramatic arc (and its associated character development) is the central scaffolding around which story is built. The characters that we become immersed in as an audience are inextricably moving through a linear sequence of events that are designed to evoke maximum emotional involvement. Everything else (setting, mood, world) is free to be molded around this scaffolding. They are subservient to it. The story is free to dictate the design of the world in which it occurs.
A game is structured quite differently. The paramount constructs here are the constraints on the player. As a game designer I try to envision an interesting landscape of possibilities to drop the player into and then design the constraints of the world to keep them there. Within this space the landscape of possibilities (and challenges) need to be interesting, varied, and plausible (imagine a well-crafted botanical garden). It is within this defined space that players will move, and hence define their own story arc.
My aspirations for this new form are not about telling better stories but about allowing players to "play" better stories within these artificial worlds. The role of the designer becomes trying to best leverage the agency of the player in finding dramatic and interesting paths through this space. Likewise, I think that placing character design and development in the player's hands rather than the designer's will lead to a much richer future for this new medium.