I worked for seven years for a major multiplayer online game company. Being exposed to so many of these games, I saw that most relied on sophisticated graphics, sound, and compelling shoot-em-up game-play while character development and story were deemphasized.
The plain truth is that story and character development at game companies are most often left to the designers, and writers are rarely hired. And when they are hired, they're usually brought onto the game team after most of the design has been etched in stone.
Unfortunately, too often traditional storytelling and character development are labeled "old school." There are, however, exceptions to this rule, such as Microsoft's brilliant Halo games.