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Yes and no. It depends on a lot of factors. In RPGs for instance, a good story is necessary (though I'll admit I'm pretty easy to please in that sense), but how good the story is determines how long and how often I'll play it. Suikoden II, for instance, I still play to this day, despite how old it is and despite the fact that there's nothing for me to do in that game I haven't already done, because the story is one of the best I've seen in gaming.
On the other hand, in some cases, story just detracts from the game. Sonic, Mario, Battlefield/CoD/whatever, stuff like that, I find the less I read into it the better. Luckily these games don't really throw story at you like your average RPG does, because they know most people don't really care why the princess has been kidnapped again.
On the other, other hand, I can't play games that only have story. Walking Dead and Dear Esther just bore me. If I wanted story without gameplay, I'd read a book.
Not changing this line until I decide I want to! (12/20/12)
It completely depends on the type of game. For RPG's (my favorite genre), there absolutely must be a decent story. It doesn't half to be stellar, but it has to hold my interest. Plot twists are always appreciated.
For other genres, not so much. I won't turn it down if it is there, but certain styles of gameplay, especially platformers, don't need it.
No, not really. A good story can add a lot to a game as long as its presented in a way that doesn't interfere with gameplay, ie. cutscenes in the middle of the action and quick time events. I think games like Hotline Miami, Dark Souls and Dragons Dogma did a great job of this. The story is there for you to dig up if you're willing to go that far down the rabbit hole, but they're fun games first and foremost.
And people who use the absolutely douchey argument of "if I wanted a story, I'd read a book" are fools.
HOWEVER, not all genres need a good story. All genres should at least have SOMETHING, but only certain genres need an excellent story. Others just need one that gives you a reason to do what you are doing.
It's funny. My gaming tastes have spun a complete three-sixty since I was young. It didn't matter to me in the NES days, but as I got a little older I felt drawn to story driven "experiences." As I grow older still, my tastes seem to be shifting back to a place where a rich story isn't the draw for me. I'm looking for things that are recognizable as games, not things that attempt to bend the medium, or try to deliver powerful narratives.
TL;DR Twenty years ago? No. Ten years ago? Yes. Today? Not so much.
I think I am pretty much with you on this. I remember reading the Zelda instruction book for the game's back story (for example) and being really excited about the story. As I have aged, however, I adopted a somewhat negative view of stories in video games. In general, I find video game stories to be shallow and uninspired. Half of the time I find that I am asking my character 'why are we doing this again'. I understand that many people enjoy the stories in video games, and that's good for them, but I don't expect much from video game stories.