Cut Scene
If it is truely a detailed narrative, I consider it a "cut scene" - as made popular by video games - I:
- Pre-record it, sometimes using family members for other voices
- Include background music and sound effects
- Provide a written summary after playing the scene for the group
Interactive Fiction
If the scene is important has several NPCs and the party needs to be able to interact with them, it has to be performed live - so I recruit guest talent for 1 or more of the NPCs (this is one of the reasons I like co-DMing large campaigns). Surprising how much more interesting the extra voice is to a mostly-listening experience.
UPDATE: Here's an example from my Scion's of Punjar campaign - which included a flashback recorded by the character between sessions...
http://dl.dropbox.com/u/3838990/SFX/Tobin%27s%20Flashback.mp3
When this was played at the session, a small box sat in front of the paladin's player. When the "woosh" sound played, he lifted the box off to reveal this build:
So first of all, I really like this idea. I tried it once or twice a long time ago and I'm still fantasizing about it. With that out of the way, let's move to my 2 cents.
Make the NPCs well-rounded characters
These NPCs aren't just some recurring characters, not to mention some one-time ones. They're gonna be with the party for a very long time. Whole adventures, actually, which is quite a lot. This means that they should be really well rounded. Your players should get to the point of distinguishing between them after just a few words, especially when the NPCs are the ones who spark the conversation.
More than that, though, they should be more than cardstock characters. You want them to express feelings, you want them to have goals, and you want them to react. Otherwise, your players will have hard time connecting with them, and this is far less good. As a rule of thumb, make them round and distinguishable from each other. A wizard is different from a fighter, true, but we want a greater difference. The prince will have hard time adjusting to the wilderness and to the bugs in his bed. The merchant will always stop to collect the better loot so she'll be able to earn much from those bargains. Classes are a dirty way to distinguish, but they're better when accompanied by some other traits.
Don't let them speak right one after the other
The players aren't coming for the game as an audience for a theater, they're here to play, and hearing NPCs talk with each other is far less fun. If you must make them speak between themselves, make it as quickly as you can and immediately move on. If you can narrate the conversation instead ("they're talking about what happened, Elsa thinks that they should go east and Hans thinks that they should go west…"), it is far far better.
Give the players the center stage
The players and their characters are the real stars of the campaign. The NPCs are extras, and should always be seen like for you that when you're playing them. If they're far cooler than the PCs, or if they have much more screen time, something is off with your campaign. It's better to not have the NPCs with the group than to let them illuminate and shadow the PCs.
They're not all knowing
Think for yourself what is more important, a character who knows everything or a character who knows only part of them. For me, it is the latter. That comes from one simple thing: There's no drama when everyone knows everything (it is not entirely true, but that's for another time). Make them say sometimes stupid or idiotic things, make them come to wrong conclusions, let them make mistakes. They're not a kind of supernatural deity who knows everything, but humanoids who are as humane as the characters, and they should be played this way.
Make them important for the story
They should always be important to the overall story, in one way or another. In one of my more successful D&D campaigns, the characters had to escort a princess to a neighboring kingdom through the forests. Having to keep her safe from one hand, and dealing with all of her complaints from the other one made the game so much richer. They don't have to be important to each and every one of the scenes, but they should always be important for the overall story. Otherwise, the characters may just leave them to rot one day, when things will turn the wrong way.
And an end
Hope I succeeded with helping you a little bit.
Best Answer
Give them the narrative and have them tie themselves in
It looks like the reason you want more detailed backstories is so that you can incorporate them into your own overarching plot. However, simply telling a player "make a backstory" without guidance will make it difficult for you to do that, and it often leaves players with writer's block.
I have had some success by giving the players a specific prompt. For example, in my latest campaign, I told my players, "Your character just died. Come up with a reason why your character is at level XX, and how they got killed." The campaign then started with all of them being resurrected together. This allows you to weave those motivations into the story more easily. Some examples could be:
As with most creative writing, imposing some limitations and giving some prompts goes a long way toward spurring creativity and prevents wild flights of fancy that are hard to work with.
Backstories are living documents
You don't have to limit backstory generation to the beginning of a campaign. Instead, choose certain points and sessions where your players can inject their own backstory. For instance, my players recently entered a new city. I told them that their characters had been there before, and knew some people. I asked them to give me a list of potential contacts their characters might have in that city, and to describe their relationships. I then pick and choose a few of those contacts and edit them for plot purposes, and to reflect the passage of time.
By constantly adding to backstories, characters feel like they are more integrated into the world. Indeed, this is how fiction usually handles backstory. You don't get an infodump of backstory every time a new character is introduced--the backstory is revealed in bits and pieces as it becomes relevant. Moreover, this results in more fully fleshed out characters, as players can continually refine and sometimes redefine their characters' history throughout the campaign.