Emulating real life isn't going to be as exciting as you think it is. That awesome moment in Half Life is scripted to make it immersive like that, but most of the game isn't and that's what makes it special. If all the enemies behaved realistically all the time, the game wouldn't be fun, I can guarantee you that.

I tested a Sherlock Holmes game where AI was used for character interactions.

The actual dialogues were of course awesome, and relevant.

I gave them feedback about the controls for moving the character, which were a bit awkward.