I don't think this would be supported by the engine, and just like features such as fully destructable enviromnents, it would cause a lot of problems and glitches and eventually break the games mechanics.
im not suggesting that, there are ways of making such things without making them so detailed but still looking convincing, and with console hardware.
ill give you a scenario,
say you walk into a town and suddenly there is a random cutscene. suddenly you enter an interior cell that has a fire gradually creeping toward you jumping from roof to roof igniting the town. you see the mages guild hard at work casting wind and water spells to control the blaze. flame atronochs are in combat with the guards and the fighters guild and a 2 wizards are fighting each other in levitation.
see this is mostly playing on the ideas of:
*random encounters
*pseudo-destructive buildings [faked for the cinematic value]
*phased environments. things that happen in the interior cell get changed when you return to the exterior.
so when you come out of the battle that part of the town is scorched beyond recognition, think pre kavatch.
but also even though that can be done its a cheap effect.
with better techniques developed within the past few years there is no doubt in my mind that a more convincing method is available.