I played with this for a while right when it came out. It was a lot of fun, but I gave up on it because it was so much work to put together a polished project.
Step 1. Create actors. Play with them like they're little barbie dolls. Cackle with glee at all the cool costumes/head choices/makeup options/little touches. See how many real people/real celebrities you can duplicate.
Step 2. Write your script; spend hours and hours fiddingly with every option until everything is just perfect (except that one scene where they've inexplicably left out half the emotional range).
Step 3. Roll camera! Go take a nap.
Step 4. Review film. Wince at hideous auto-title card. Start to notice little errors, like the wrong "mood" selection in scene 18 or the actress playing Jane has gotten herself a boob job between scenes 1 and 19.
Step 5. Reload the game from your last save (you did save before shooting, right?) and fix all the errors you can see. Decide the result is passable and just needs editing.
Step 6. Load up the finished file into the provided editor. Scream with frustration at the insanely unintuitive controls, the clunky, imprecise editing, and the lack of features. Try to synch up music; fail miserably. Try to synch up the subtitles for dramatic impact. Give up; synch them for "roughly in the right place".
Repeat steps 3 - 6 until you finally give up and shoot multiples of each scene with different options, export the whole shebang into avi, and load it up in your own film editing software.
Now, I only had to do one full reshoot, and fortunately I'd saved the game at a good point for it. Using Sony Vegas as an editor, I ended up with a fun little trailer for a weekly rpg I run. Three minutes... for about eight hours of work (not counting playing with the actors, that wasn't work).
My biggest issue -- besides the editor -- is the terms of use. When you create something with this game (they're very clear to label it a game) you keep your ideas, characters, etc., but everything else is still the game company's. So there are so pretty hefty restrictions on what you can do with the end product.
So I agree with you. It's a great toy, a lot of fun to play with, and the game mode is a great little sim. Someone who just wanted to block out scenes or test how something might look would probably get a lot of mileage out of it. But for telling stories, you'd have to be REALLY dedicated and not mind that your end product isn't technically yours to do with what you please.