When it comes to character interaction it is easy to roleplay and set a mood, since dialogue is a natural tool for creating a dynamic which leads to character development. I think this can easily become the default tool we use to roleplay.
The game world itself is far more static, so the players may feel less connection to it. The game world can easily become just a background over which character interactions take place, whether these interactions be haggling with a merchant, sharing a moment with a lover, or slaying a dragon.
I think the game world can be far more than this, however. The lands surrounding the player can initiate a kind of dialogue with the PC, through the sights, sounds, smells and textures that comprise the world, as well as the legends that have been collected and retold about places in the world. Both of these - the physical aspects and the ideal stored in memory can be evocative, but they have to be exploited and described.
Describe things in such a way that the players want to, or have to, 'talk back' to the world as it were. Here the weather forces characters to shelter in a cave, where ancient wall paintings abound, telling the story of the first men who inhabited it.
Here the vistas are so compelling, tales abound of people walking off the cliffs, so enthralled they failed to notice their demise. Take the mechanics away, tell the stories, let the bard make a lore check and come up with a story of their own - make the world live and breathe.
Don't worry so much about completing a goal, or getting those few extra XP you need to level up. Tell stories instead, and let the mechanics fall into the background as much as possible. Not every moment needs to be a puzzle that has to be solved.
Heck, you can even work this into the mechanics if you wanted to. Simply reward roleplaying and storytelling with XP - after all, sharing stories is a way we have all learned before.
