Full screen non-animated (pictures) cut scene with subtitles...
Fable did this and it worked out quite well. i liked it and so did other people. Plus it is way eaiser than;
Text & video panel
Full screen video cut scene
Full screen video cut scene that blends with real-time environment

Windows 7/ 2.8Ghz Quad Core i7/8 Gigs DDR2ram/ 2 Crossfired ATI 6850's and one crazy Level Designer! On the "Scion" dev team!!

My old Work http://s44.photobucket.com/albums/f34/penut117/