hmmm what to say that others haven't already?
I guess I try to make dialogue descriptive. It's the little things that matter I think, giving each character a reason for wanting something, or sometimes just giving the smallest hint as to what they want. It makes the player think more, so the puzzle is more satisfying when they solve it.
Adding detail to conversations is good too, and helps to give the game a good atmosphere. If a story is fleshed out, then the player feels more a part of it, and is more likely to want to play it. Maybe adding dialogue where it isn't needed, such as the 'points only' puzzles in MSD. Humour is good too, and can give the impression that they really are conversing, rather than reading from a script.
Even just things like item descriptions can help - 'a rusty old key' is more atmospheric than 'a key', similarly, 'a sodden towel' is better than 'a wet towel'. More atmospheric, see? item descriptions are food for the players imagination. Of course you can go overboard - 'a large heavy rusting silver key' is just overkill. The trick is to be descriptive and concise at the same time. The same goes for dialogue. Concise but not stilted.
I generally try to capture the 'feel' of the original games, where the dialogue was quite jolly, even slightly mocking sometimes. However I do love the dialogue I came up with in MSD when Dizzy hits the Golf ball at Grand Dizzy :lol: even if I do say so myself! It's a bit risque, but I think it's funny.
That's just my 2c anyway :smile: