BlizzCon Diablo III Panel
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Boyarsky, who also worked on the previous two Fallout games, talked about the unexplored potential in previous games, and that they really want to push the feeling of this being a living world. He talked about two of the cities, Caldeum and Skovos that are heavily referenced in the story in Diablo III. Caldeum is a political city built on trade and commerce, and Skovos is based in legend and mythology, and is also where the Amazons and Rogues hail from.
To help emphasize the story in D3, they're giving more weight and context to the choices that the player makes. They're also zooming the camera in on conversations to make the player pay more attention to them, rather that keeping the same pulled-back view the entire time. Each class and sex will have their own character-specific dialogue, and NPC characters will react to you based on what race you choose.