I'll vote for more interactivity in games. Back in the day I was amazed that you could flush the toilets in Duke Nukem 3D... shame things havent evolved much more since then.

Well we can drink from them now.

Why? You are playing, you react on your own. Not your character. That makes it more personal.

A lot of times, people enjoy imagining their character as a separate entity, experiencing the game world from the perspective of someone actually in that world. Emoting and other forms of world interaction help with this. It's a niche thing, but can really alter your experience of the game. I can't count the number of times I've done things like /say respond to npc questgivers in WoW or RP walked in Morrowind or Skyrim just because that's how I imagine that character would realistically react. Sure, every onlooker thinks I've cracked, but it's an interesting and immersive way to play.

For me, though, the gold standard isn't cosmetic/non-interactive emotes, like most games use. Being able to /fart on an NPC is fine, but I love what games like Ultima & Gothic do in terms of world interactivity. Look at Skyrim. I run through the environment, killing animals and picking herbs, and go to an alchemy table where I brew, in a menu-driven manner, a bunch of ingredients into a potion, which is instantly added into my inventory. There's no personality there, it's just a crafting menu. Skyrim is better than most, particularly in terms of Smithing, in graphically representing multi-tiered crafting, but it's still mostly just a menu. In Gothic, I killed an animal, harvest its meat, take the meat to a stove, where cooking it plays an animation for each piece of meat I want to cook, and then I have cooked meat. It's simple, but the facts that first, it takes time, and second, its primarily graphically represented and not menu driven, this is what puts it ahead. Then you take a look at something like Ultima VII, where nearly every in-world object can be interacted with, moved, picked up, and so on. It's an isometric 2D game with legit crate stacking puzzles. That blows my mind. Ultima VII, in many ways, has not been surpassed in terms of interactivity.

But even without that, something as simple as an NPC responding to an emote in some way reduces the robotic, theme-park nature of gaming. The Elder Scrolls series is complicated here. I loved their proximity responses and head turning, and they've incorporated a lot of good elements from previous games, such as assigned housing and schedules for NPCs, sitting in chairs, and the ability to interact with physic objects. But when the only things you can actually do with those NPCs is talk (or simply elicit a scripted response from 99% of NPCs, and even with talking you get a very limited number of lines. Compare that to Ultima, where every NPC can be asked about dozens of topics.) and fight, then it emphasizes the "game"ness of the situation. Fable, WoW, and The Elder Scrolls are really pushing the boundaries, but there's still room for a lot of improvement as interactivity goes. It's especially pressing with the current advances in VR, since immersion is set to be a hot-button topic.

Streamlining. Many players just do not have the "time" to make use of these cool little features, so they get dropped

This was very well said

So, why hasn't the gaming industry embraced some kind of sophisticated conversation bot tech and embedded it into games yet?

Done properly you could sit around and chew the fat with NPCs for hours.. maybe even unlock side quests and stuff.

Just a thought

I have a mod for Skyrim for this myself. Hopefully Bethesda will involve this kind of stuff in their later installments.

All of this, and more, is what make a world feel either alive or dead to me so I very much agree here. Again...

I always thought it was a shame when a quest was done and never again could you talk about it with the NPC, maybe once again give proper thanks for the reward or condolences for someone who was lost. Then again I do think all this would take up too much time for the devs..

The main reasons are likely that chat bots still aren't quite "there" yet in terms of being able to hold proper conversation, the fact that games have largely moved away from non-voiced dialogue (and again, text-to-speech is an imperfect technology), and that implementing it would be a lot of effort for relatively little reward.

The first place we're likely to see it is in a smaller indie game, or from a mid-size developer. They're the studios that are willing to take risks and be a little rough around the edges for the sake of innovation.

Oh, yeah, and in Time to Kill, you could pee in them, wash your hands, look at yourself in the mirror and fix your hair (followed by "I'm God's gift to women" lol), turn the light switches on and off, use the phone booths, etc. Funny how there's so much more unimportant little stuff to do in a parody shooter than in most RPG games. Heck, I'm even happy when world interaction comes down to just being able to inspect random things in the environment. Black and White let you inspect every sinle object and being in the game, no exceptions. From grassy terrain, boulders, houses, trees, to cows, mushooms, children, food piles, there was a comment for everything. I thought that was very cool.
These are not fully related to actual interaction between the PC and NPC, but it's still world interaction, and I like world interaction too.