There are two potential endings for a discussion like this, either optimistic or pessimistic. Neither is sustainable. The ‘interactivity is post modern’ school of thought sees interactive representation as a liberation from the repressive authority of traditional narrative form. There are echoes here from the avant-garde and anti-narrative movements in cinema and writing which have their source in the utopian ferment of the 60s. (See Zap Splat by Malcolm le Grice) Yet the consequences of the opening up of closure - that interactivity will be ‘commonplace, unlaborious, shallow, un-literary, heterodox’  are more difficult to accept.
Others see the simulation as promising post-symbolic representation, bypassing the patriarchal distortions of perspective and the controlling point of view. An interactive simulation, according to this argument, offers not the representation of objects but the representation of relations between objects within which the participant can select their own point of view. By using immersion interfaces the participant can gain, so the argument goes, direct (ie unmediated, objective) access to pure data, (a realm both digital and noumenal). However, in characterising this as a shift from coded representation to experiential post-representation what is glossed over is the coding and mediation involved in constructing the simulation in the first place. Sim City, the town planning simulation game, is just as much a cocktail of opinion, received wisdom and poliitcal ideology as any other doctrine of urban decay and renewal - it simply hides its politics more effectively. These are old arguments against the naturalisation of representation, but it seems that they will need to be rehearsed once again.
Is this the end of the road for narrative, grand or otherwise? Are we to become a people without stories? Once again the linguistic category of aspect provides a useful analogy here. We have seen how the shift from narrative to the interactivity involves a shift from perfective to imperfective, from outside to inside the time of the events being described. Thus narrative representation and interactive representation might be ‘different ways of viewing the internal temporal constituency of a situation’ as well as different forms of spectatorship.  As interactivity increases, so the spectator is thrown inside the representation to become a player. This increasing involvement of the spectator within the frame needs to be situated within the broader context of a long historical trend within the visual arts, and most recently within the development of film language, towards techniques of encouraging identification between viewer and artwork. But if an interactive simulation can almost literally put you in the frame, it does so at the expense of narrative coherency - unlike film, interactive media has not so far developed a language which allows identification within a narrative framework.
At the heart of the interactive representation narrative reinstates itself through the subject narrativising the experience, making sense from (simulated) events. If narrative is a technique for producing significance out of being, order out of contingency, then simulation can be seen as its inversion, a technique for producing being out of significance, of generating a simulation of contingency from first principles. Rather than a people without stories, interactivity offers the promise of a people within stories, and rather than the end of narrative, an explosion of narrative within the simulator.
Like any other form of representation, interactivity is an illusion. It puts itself in the place of something that isn’t there. What then might be the absent referent of interactivity? According to both neo-liberals and techno-utopians interactivity promises the spectator freedom and choice. It is precisely the absence of such freedom and choice that interactivity would appear to conceal.