@EvilKing... Goat Simulator... that really is a brilliantly ludicrous concept for a game and I'm really keen to play it. I believe it has done incredibly well since release:
http://www.goat-simulator.com
With regard to in-game story/back story/expositions/cut-scenes/documentation,
I could be completely wrong, but I think Seith will aim for a 'bare-bones' approach, strive to keep the players in-game, and allow them to figure things out using clues the environment and items in it. He has certainly expressed that there won't be a lot of 'hand holding'. Personally, I believe that GOAT will be set in a detailed world with a backstory, but delving into it may be mostly optional.
As you probably know, Dark Souls is one of the inspirations for GOAT, and Seith may lean in this direction:
http://www.eurogamer.net/articles/2011- ... ls-article
http://gamasutra.com/blogs/TomBattey/20 ... _Souls.php

Your pop-up window concept, showing the dreaming Tilo, sure is smart and innovative! Personally though, I'm hoping that Seith will go after (one of) the holy grails of gaming.... a completely interactive movie... without a HUD / cut-scenes or other 'game-like' effects (like hovering arrows pointing towards the objective, or special icons hovering over items that can be picked up).
But doing it all would need:
a) a world rich enough to tell its own story without needing cut-scenes, text or some type of narrator/NPCs providing tons of explicit exposition/guidance, and
b) in-game visuals that communicate key items/objectives players without the need for a HUD or hovering 'interesting item' pointers.
Doing it all would be HUGELY ambitious and quite risky too. Imho Seith is already stretching indie boundaries in terms of visuals... he's doing AAA graphics instead of 'indie art' (I love indie pixel art too, but GOAT is waaaaay the opposite).
As we know, from his background, Seith has the skills and knowledge. I guess it is a question of whether he has the time and resources. Even big-budget developers, with large teams of specialists, have shied away from this kind of ambition and risk.