Cathy's Book / Longest Journey
The diary form as used here doesn't give us enough insight into anybody but Cathy. I think the book would have been much more successful on the characterization front if the diary had been shared, less diary more epistolary. There's a small section of the book that transcribes an IM conversation, and it works pretty well; more of that plus emails, blog entries, etc. from other characters would have given us the in that we needed into the other characters' emotional lives.
A fiction that doesn't fail to create great characters is The Longest Journey. which I finished replaying two days ago in preparation for playing Dreamfall. Great characters and dialog there. I'd forgotten about Burns Flipper, so I got to laugh out loud again. The plot isn't without its flaws but they aren't serious. Top voice talent added to the creation of characters that I'm excited to see again.