"Two women are walking over a bridge. One is afraid of heights, so her heart pounds and her hands tremble. The other is not afraid at all. On the other side of the bridge, they encounter a man. Which of the two women is more likely to believe that she has just met the man of her dreams?" This is an example from a recent Science magazine article on Embodying Emotion. The author, Paula Niedenthal, explains that our prior physiological state gets intertwined with how we feel about experiences and about other people. She talks about ways that psychologists have demonstrated that changing how a person sits (slumping or sitting straight), or moves her face muscles (as if frowning or smiling), has a definite impact on the way the person feels afterward about whatever she's been doing.
A game designer who wants to create really powerful emotions between a player and a character, then, should aim to get the player's body in the right emotional 'frame of mind' to connect in the right way... and should also think about unintended combinations (e.g. I meet a character I'm supposed to fall in love with after a relatively boring bit of game play). It's something that movie makers do all the time... what I like about this article is that it provides some of the 'why' behind how this works.
With new ways of sensing player emotion (remember the Mindball game from Sweden? It now seems to be a product.), and ways to get player's bodies going (like the Wiimote), the possibility space is growing all the time. We just have to learn to use emotion state as a design constraint in a conscious way.