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The Infinite Adventure Machine Generates Fairy Tale Plots
The Infinite Adventure Machine is an artificial intelligence project that is intended to generate plots for fairy tales.
The device does not deliver finished stories, but rather presents a synopsis and illustrations for a human user, who embellishes the story using their own imagination.
(The Infinite Adventure Machine (prototype 01) video)
I chose fairy tales because they are a good example of stories with a function: the transition from childhood to adulthood. So I imagine this being used by children and/or parents, for example as a bedtime story. It could also be a family game, although there is no scoring system.
The important thing is that it's a computer program which prompts creativity and interaction between people, so it could work in different situations. Someone from an children improvisation theatre in the US got in touch, and they are interested in using TIAM in their shows. It is not quite ready for that yet, but fairy tale battles on stage might indeed be happening in the near future!
SF readers might recall the verse transcriber from J.G. Ballard's 1971 short story Studio 5, The Stars.
Also, the electronic bard from Stanislaw Lem's 1965 work The Cyberiad: Fables for the Cybernetic Age has a variety of advanced techniques for generating stories:
Trurl let the machine warm up first, kept the power low, ran up the metal stairs several times to take readings )the machine was like the engine of a giant steamer, galleried, with rows of rivets, dials and valves on every tier) - till, finally satisfied all the decimal places were where they ought to be, he said yes, it was ready now...
Now that the potentiometers indicated the machine's lyrical capacitance was charged to the maximum, and Trurl, so nerous his hands were shaking, threw the master switch...
(Read more about Lem's electronic bard)
Update 17-Aug-2024: Consider also the bard from Someday, a 1956 short story by Isaac Asimov.

(Bard from 'Someday' by Isaac Asimov)
End update.
Via WMMNA, which also has a nice interview with the designer of The Infinite Adventure Machine, David Benque. Thanks to our friends at Frolix 8 for finding this story.
Scroll down for more stories in the same category. (Story submitted 9/8/2011)
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