Great idea that ended up terrible. Like I said, I won't believe anything until I see it. But, the new tool, how it works conceptually, how they're talking about the approach... it's the right direction. They're using some of the reputation approach that Obsidian took with New Vegas but they're using a new tool that manages reputation, and items/quests/conversations, by person and by relationship. The idea being that if the NPCs is a character that knows you, maybe one that you've quested with, or has accompanied you (which they hope will be any number of NPCs this time around), and you have a good relationship, they won't mind if you come into their house and have some food. If a storekeeper dies, their is a backup designated that has dialogue/items/quests queued up... if you happen to have killed that shopkeeper and his daughter has taken over, she will probably still do business with you, but she'll remember, your prices will be steeper (and Bethesda has said that the PC best beware because she won't forget and just might try to do something about it).

Also, the AI can, and this has already been demonstrated to a good number of reviewers, tailor random events and side quests to the specific PC, their experience and history... meaning it will draw from events, locations, feats, to sync story with the game.

And much, much more.

As is always the case with all games, and always with Bethesda, the ideas are grand and would be awesome if done even close to right. The reality will be less than the sales pitch, but they could still be pretty dang awesome... or maddening missteps.