Very interesting concept.
The main problem will be to correctly implement this:
"The world will react to each and every thing you do, and the “Butterfly Effect” will be present- if you do something on one side of the world, it will affect something on the other side of the world, in one way or another. "

Say, in Oblivion world's reaction is mostly inadequate.
Reactions to some particular actions were scripted, but it's not enough.

A complex AI system needed to implement this to made the world living.