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Rainbird said:

While I agree that interactivity is key, and showing something in a cutscene that would have been more fun to play (DMC4 is a great example of this), I think the audio diaries in Bioshock are a very bad example.

Why have people recorded everything they thought aloud to themselves, and why are these diaries all intact and spread throughout Rapture. It makes no sense at all.

Personally, I would much rather have a cutscene that preserves the atmosphere, than something that brakes all the laws of logic and takes you out of the game by doing so.

Well Bioshock was more of just an example of how great storytelling could be done without the use of the cutscene. I enjoyed how I could listen to them on my own time, learning about the history and characters of Rapture even while playing through the game. The key was that I still had the freedoms that the game offered me while the developer could tell his/her story to me. That is what I really enjoyed about the game. I didn't have to give up my play time and the developer didn't have to give up on his story. Win-Win.

But as far as believability goes, Bioshock could have had giant cuddly panda bears as enemies and I still would have believed it. It's a crazy world down there.