Neverwinter Nights Preview @ GameSpot
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To add an NPC to your world, you just choose a character or monster type, select some basic attributes, change its appearance if you like, and then begin creating the dialogue tree. You just click and type, and you can set special parameters for the characters' responses. Want your NPC to give a special item to any male dwarves in the party? Have some information that will go to only charismatic female characters? Click a few boxes, and it's done.
Creating special items is just as easy. Choose the type of item and add any attributes you like. You can create incredibly powerful weapons and items--in the demonstration, we made a bastard sword that did additional electrical damage. What's great about the toolset is that it lets you jump into the game and see your creations, and we were able to quickly start up our custom maps and see characters picking up and wielding the sword, crackling with power.