My feeling is that an interface should be as streamlined as possible while not making it so simplistic that all you do is press the same button each time without any thought. Gaming conventions have moved on and having eight possible choices for every interaction is no longer contemporary, particularly if most of the choices would lead you to a generic response.
I don't think that the "watering down" of the interface is the main issue, but the "watering down" of the interaction points within the game environment. If a location exists simply to look pretty or the character is doing more walking/running than interacting, then the developer should seriously be looking at the design of the game in relation to the world it's set in.
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