I'm not expecting anything outta this world. If they can master what they WANTED to do with Oblivions AI and make it work in Skyrim I will be more than satisfied. Especially now that they are expanding the concept into radiant story as well.
I have no idea what "Radian Story" means. I think it's just a fancy way of saying "Randomly generated quests".
The problem with the Radian AI is that it's a very complicated way to make NPC's do simple stuff (as opposed to just a simple scripted pathfinding algorithm), that's why Oblivion was a bit of a letdown for most of us.
But I think that when they succeed to take it a step further that it's going to be rather unique and impressive. It's not just about giving the NPC's freedom, they also need to give them reasons to use this freedom. NPC's hadn't much to do in Oblivion.
Since Skyrim will contain jobs I hope it will finally create a real virtual consumer based economy where iron is mined/forged, wood shopped/crafted and food is produced and consumed...
That will compliment the Radiant AI like peanut butter and jelly.
Combat and stealth is a completely different branch of AI, it's easier too and I think it's reasonable to expect some improvements.
For combat I hope they go as far as to create unique behavior sets for every creature, having vectors for "circle diameter", "tame/wild", "fight/flee" and "reckless/coward".
In real life, wild creatures have one or more "circles", when you enter the first circle it triggers a reaction "fight/flee".
"Fight" means they'll try to intimidate you and if you get in the second circle they attack.
"Flee" means they'll move away until you're out of the circle again. If you get in the second circle, "Flee" may turn into "fight".
Some creatures are programmed to run away as soon as they get hurt, others fight to the death most of them are somewhere in between. "reckless/coward".
"tame/wild" determines how much you can agitate an animal before their instinct kicks in. (basically how long he can tolerate you in his circle)
It's not really that hard to program and it will really do a lot to make animals behave realistically.
Humanoids should use various strategies instead of attacking you head-on and calculate their winning chances, possibly working together as a team. That's a lot harder to do, but there are plenty of good examples in other games.
Mages should use more spells, Fighters should use try to knock you off balance, Thieves should try to blind-side you. When they see they're about to lose outdoors, they should flee and indoors they should try to yield.
For stealth I was already pretty happy in Oblivion, but it would be nice if you had a meter to see your exposure level and a way to create distractions by throwing rocks or creating sounds with magic.