I agree, what a great thread (although it's mutated from Arcadayn's initial post, but I prefer to think of it as evolving).
I love to GM freeform. My group's first session was on the fly after they made up their characters, we started right away (I didn't have the 1st edition RPG book at that time and one of the players [Tiberius on this thread] printed out the NPC stats sheets supplied in the Conan freebies section, and they were all I needed (besides leafing guy's rpg book)! I wanted to get them together in a wierd way but keep the action constant, and although I couldn't really and truly start
en medias res I did a close approximation. Everyone had a pretty good time, it was challenging for them and they got together. The NPCs I'd made up on the fly became recurring characters (and Tiberius ended marrying one of them!).
The guys at the same time said they enjoyed the adventure but felt that, by not running pre-published adventures, I gave them something to gripe at ("If it was pre-published, we couldn't complain because YOU didn't write it, someone else did; they're superior to anything you create that way"). I took this as an insult but caved in and ran Kovag Re next, which was ridiculous because of it's very setup. After that I compromised, I made up NPCs fully and started writing adventures to act like pre-pubs. I found this necessary in part because one of the characters was a sorcerer, and you had to have everything slotted for a spellcaster in a way you wouldn't need with a party w/o a spellcaster. Now that the player's decided to drop him and make up a new character (non-barbarian) I can GM more happily now.
Anyway, though this has become a ramble, I have in much of my past before this group always GM'd based on character needs and an NPC model. As for my GMing, I have always GM'd in a reactionary style, even with pre-published adventures. I find it close to the paradigm actors employ in their work (was one for 14 years). My GM motto is "You can act in any way you want, just remember that everything you act upon reacts in it's own way, and you influence every NPC, trivial seeming or not, by your every action, word, deed."
I enjoy having a fast and free style as a GM. If the players don't tell me anything about what they want to do, I work off of what they had done previously. You ask, "How would YOU feel if playerX did that to you?" and create the reactions that way. When an NPC pops into me head, I make it a 1st person correlation, I don't distance myself from the subject by thinking in an omniscient mode. That helps me react in a way that's not what the players assume the reaction would be. Does a 14 year old girl respond the same way as me, a 34 year old diabetic man?
I guess since I'm giving suggestions, I'd just say that if a GM pays attention to the particulars and doesn't generalize he can't go wrong (also an actor's law). Does this mean draw every square foot of every building and label and describe every particle of dust in it. No. It means character interaction. I've only drawn ONE building in my Conan sessions, which should have been a climactic adventure but turned out very differently (of course). But because I knew the character of the evil sorcerer, and the Stygian player's mentor who had sent the party on that adventure, and the adventure led to the antagonist's temple, I knew I could deal with whatever happened if it went against what I thought the players would do, which happened at the climax and severly altered the party's fate. If you know the person(s) who built the location you're GMing the players in, you can deal with the location without needing everything spelled out.
I'm sorry, I realize this isn't true for everyone, but I find it essential for myself. I GM'd a whole city on the fly once because I had decided on what the city's inhabitants and leader were like, which led me to answer why their ancestors built the city how it would be arranged. Asking one quesiton, answering it leading to the next question...and I decided on it in a couple of minutes. I don't recommend it for everyone, I'm just saying that's how I GM, which seems similar to some of the other posts already made here. I'll stop writing this overdrawn diatribe now.

G'night.
