I hosted a game of Meg Baker's excellent '1001 Nights' at our Thursday night Story Gaming at EndGame this week.  I will start by saying that the players were unanimous in their praise for the game and we had a LOT of laughs at the table.  I had played the game once before, and this was the first time for the other four players.  Here are my two characters (one gained their ambition so I created another partway through the session) in case you aren't familiar with the game:

Name: Zara Ghassani
Position: the Sultan's crier
Hearing: I love the sound of my own voice
Sight: I see approaching ships before anyone else
Smell: The smell of horses nauseates me
Taste: The taste of coffee relaxes me
Touch: I strike the man who touches me

Clothing: Libas (pants) of fine black silk and a red sash to remember my dead father by

I envy Kaleem for his prowess in the saddle
I envy Buster for his knowledge of the sea
I envy Amir for the gold in his purse
I envy Mariam for sharing the Sultan's bed

My ambition is to lose my virginity to the Sultan

I started off by telling the story of The Princess without a Gown, which also included the Princess' maid, the washerwoman and a brave knight.  The Princess lost all of her fine clothes in the river and was left with only traveling clothes with which to be presented in front of the King.  But all four characters ended up in the same room and it was an instant soap opera as the knight mistook the maid for the princess.

During the first few stories, Zara concentrated on gaining her freedom, and was able to secret away several camels and enough supplies to last for a long journey.  The night she was to leave, she walked by the Sultan's tent and found that he was without a woman that night.  She briefly considered taking her opportunity to seduce him, but realized that she would never again get such a good opportunity to escape with her life, and she took the camels and her deaf and blind young friend off into the moonlight.

Then I created another character:
Name: Ahmed Al-Rashadi
Position: the Sultan's barber
Hearing: I hear when the Sultan calls me
Sight: I see beauty in all women
Smell: I love the smell of sweet tea
Taste: I taste the moonlight on my tongue
Touch: I love the feel of a smooth face

Clothing: Taksirah (vest) in dark blue and browns

I envy Kaleem for he smells of saddle leather
I envy Abu (Buster had since been beheaded!) for his silence
I envy Amir for his handsome face
I envy Mariam for her quick wit

My ambition is to be recognized as the great swordsman I am

The barber tried to use his close proximity to the Sultan to hint at his family's warrior past and convince the Sultan of his prowess, but the Sultan could not see past the razor in Ahmed's hand and would not take him seriously.

Other stories I remembered were:
The Smokeless Djinn (about a cruel master and his young stablehand)
The Story of the Four Fools
The Monkey and the Ass
The Handsome Soldier (which also featured the conniving sultan, his put-upon wife, and the wandering wizard)

Here are some thoughts on the game from myself and other other players at the table.  If there were errors in play, the fault was all mine.

1. As the first storyteller, I started out with three dice and gained seven dice during my story (I gave one up to cause an interruption to end the story).  I gained some of my freedom from this roll and was able to keep all of the dice that weren't successful in that roll.  So at the start of the second story, I appeared to the other players to be way "ahead".  And as a result I was able to gain my freedom after only two or three stories.  Perhaps the first storyteller shouldn't start out with three dice?
2. Being normal game players, we couldn't help watching for ways to "game" the system.  And since the ambition dice could be shut down, players tended to spend most of their non-safety dice on freedom since it couldn't be influenced.  One player wanted to see either a way to stop a freedom run or to make freedom dependent on more than seven successes.
3. We found it difficult to concentrate on telling a story while also trying to answer the other players' questions.  So as a result we found it almost impossible to weave in elements of our character (such as senses and envies).  The stories either turned out to not really involve the characters' personalities, or in one case they were direct insulting attacks on the other characters.  The subtleties were hard to attain, but perhaps this would come with more experience.

But man did we have a lot of fun with this type of collaborative storytelling!  This is a game that I could easily see playing with some non-gamers and try I will.

Wow, what cool Courtiers! It sounds like the game delivered nicely.

1. <snip>  Perhaps the first storyteller shouldn't start out with three dice? I think you'll find it evens out over time - sometime the GM takes a longer time to win eight dice. Feel free to try it with the starting GM having only one die, if you like. I do think the starting GM deserves a bit a reward for going first, though.

2. <snip> One player wanted to see either a way to stop a freedom run or to make freedom dependent on more than seven successes. If you want a longer game, you can scale up the numbers - 5,7,9 comes obviously to mind. For a more perilous game, try 3,7,9. As to stopping a freedom run, there's nothing to prevent reading a failed roll on Freedom to mean someone foiled the escape plan.

3. <snip>  The stories either turned out to not really involve the characters' personalities, or in one case they were direct insulting attacks on the other characters.  The subtleties were hard to attain, but perhaps this would come with more experience. In my own playtesting, holding both the Courtier and the Story-character does come with experience. The two types of Story you describe - diverting and attacking - are pretty common. To tie the two levels together, I generally up the insult level on every other story.