I was being facetious in a sense, not actually suggesting that you go out and buy The Sims. I only stated that what you posited for a style of gaming, really already exist.
I have never actually played The Sims, although I have watched others play it for a few minutes. What I am positing would be more dynamic than what I understand The Sims to be. There would be joinable factions and joining one faction would affect the disposition of all NPCs. Some would like you more, some would like you less dependign on what factions they belonged to. Bandits and such might have their own faction, so you could live with the bandits if you choose to do so and could figure out a way to permanently raise their disposition toward you enough for them to engage in conversation rather than just attacking you.
There would be no set story but there would be raidant quests and things like that where NPC's would ask you to do things to advance your status in a particular faction, but they would all be generated by the AI, rather than being scripted. You could kill anyone in the game but there would be consequences for getting caught.
There would be multiple ways to advance through each of the factions ways to get kicked out, ways to get back in after being kicked out, but all of that would be generated by the AI, rather than being scripted so it would be different each time you play, with no set story behind it.
In such a game you could decide to depose Ulfric and become the leader of the Stormcloaks and eventually High King yourself, if you could figure out a way to do it. Or, you could do anything else you wanted.
You could have more or less real conversations with the NPC's, rather than just a few scripted dialog options.
I am basically talking about Skyrim but taking their radient quest idea to the nth degree, so that was the whole game and it was meaningful. We are years away from having that type of AI available in a videogame and it would have to either be text based dialog or they would need a much better voice synthesizer than what you have now.