To bring the thread back to Mass Effect... 
I'm also extremly excited about this game. While both genre's of RPGs (East and west) seem to have done a great job of making combat interactive, NPC dialog systems still need work. My understanding of what Mass Effect will be improving is the way you communicate with NPC's.
In most RPG's you listen/read the NPC's dialog, then you get a menu of choices to respond. That's all fine, but it's not how real dialog works. In the real world you can interupt someone while they talk, and they can respond to the interuption by getting angree, changing topics, growing fearful, etc.
My understanding is that in Mass Effect you'll be able to interact with the NPC's while they talk. Instead of having to wait to hear an entire dialog.
Here's a paragraph from "Xbox360Fanboy.com" that talks about what they experienced with a hands on session:
As entertaining as combat is, the dialogue system is perhaps the real star of the show. Gone are the old dialogue trees and canned responses of games like KOTOR and Jade Empire. Well, the trees are still there, but they are cleverly hidden in a much more emotional system. As characters are talking, you'll be prompted with several choices, possibly including skill based options like persuasion. These choices are not verbatim responses, but more akin to your character's gut reaction. For instance, you might find someone questioning your ability to work peacefully with an aggressive crew member. During your conversation you might select "We'll take him," which leads your character to say aloud, "Don't worry, he'll be safe with us." Using this dynamic dialogue system, we found ourselves actually listening to what our character had to say, rather than simply picking a selection and skipping to the next prompt. A dialogue system that engages us in the story? Yes, please.
If someone can create an RPG that makes the dialog system as engaging and interactive as the combat system that would be a huge leap forward IMHO.
Full Hand's on Article: http://www.xbox360fanboy.com/2007/07/17/x3f-impressions-mass-effect/