We really, really, really need dynamic music in these kinds of games. I doubt it could really be very difficult at all -- have several kinds of music 'presets', like punk (mxpx, nofx), ska (reel big fish, rancid), electronic (it's all the same), pop-rock (greenday, blink 182), 'real' rock, etc.
Genres all follow basic ideas (pop-rock and punk generally are into power chords, fast-paced music and male vocalists screamo-style; ska is horns-led, with a solid bassline; etc). Vocals are easily solved voice-actor-style: simply have hundreds of 'lines' in a song (say, two bars each) and have basic rules tying them together (as well as ways they can be manipulated to 'fit in' with each genre).
Futhermore, any songs you listen to all follow a consistant set of rules (the most popular across the board being "verse-verse-chorus-verse-chorus-bridge-[verse-]chorus"). Most bands tend to use a core set of 'rules' -- The Offspring, for example, always tend to follow similar chorus-verse patterns, powerful guitar chords leading, and most always has some sort of "hey!"- or "beat-beat-yeah!"-type scream at some point, usually chorus -- which means you could save your own "band" presets which incorporate certain instruments (based on genre) and make an arbitrary set of rules that define that band's sound.
The best part about this system would be integration with games such as Burnout, you'd be able to gracefully end the song at the end of a race, speed it up, synchronise beats with the pace of the game, movements of the camera or effects such as explosions or crashes.
This is a rather good idea. I wonder how plausable it is to put into action?