@OrangePeelEater:
First off, IRL, we can't make games that respond sensibly to
fully free-form user input, like here. I mean, you can easily imagine any response to natural-language processing of input would be, well, about as smooth as whatever a chat-bot can do at best. But more fundamentally: Story AI that adapts smoothly to
whatever you do in a free-form manner is basically the holy grail of Story AI; unfortunately there are good reasons to think that that may be an
AI-complete problem (that is, roughly, something where your AI needs to basically be a full conscious thinking human brain, or at least something similar or equivalent, to complete the task. We don't have those.)
Now, on the more experimental end of storytelling AI there's a lot of stuff we
can do with smoke and mirrors when restricting the sorts of actions the player can make, to make things respond dynamically
within a certain framework to player actions, using for instance strict formalized models of storytelling (which are a thing)... but all the ones I've known that take this to the extreme are experimental oddities, wherein you can totally see after playing a few minutes what's
actually going on and how limited the framework really is. Indeed, games that actually go this far are really rare because they tend to be really clunky and awkward and (despite all the work involved, it's not easy stuff) not as immersive of storytelling as other, easier things non-AI (or very minimal AI) storytelling can do.
(An aside: There's stuff like The Sims that is a simulation with sets of rules about "how the world works" in which we as users can pick out stories from what happens... that's called "emergent storytelling" (as in, the humans playing the game may
perceive elaborate stories in what's going on, but that's because we're good at filling in the blanks when a lot of the details are vague) and doesn't work for something with
specific character interactions and a firmly-directed plot like a normal visual-novel-sort-of-thing would be.)
...Disclaimer: Most of this is from taking an undergraduate class a decade ago from a leading person in story-in-game-AI research? (...which is a tiny field XD) However I'm speaking in general-enough terms that I think it's still applicable? And anyway I'm not given to understand we've had any fundamental breakthroughs on this front. Though it's been a couple years since last I dug into it.
If you want to know yourself what current bleeding-edge is, though, you can start by googling "storytelling AI". There's often fascinating stuff to read, since the problem itself is fascinating... Do be wary of hype, though: As with most research-y stuff, news articles and summary statements, be they academic or commercial-sector, tend to way overblow the potential of any new developments. Like, the first result I see right now reads blatantly like a thinly-veiled hyped-up advertisement for some company whose "AI system" is... probably kind of garbage and unusable (though I could be wrong, you never know, but that would be the usual thing).