First, Erax, if my story inspired you to write yours, then my whole effort is truly worth it! Thanks for saying that...it made my day.
Clark,
I don't do much in the way of preparation. I just play a turn and watch how it comes out, writing as I go. SEIV is Alt-Tab friendly, so it allows me to switch over to my Word doc quickly. I have story threads in my mind (which, oddly enough, usually come to when while I'm brushing my teeth and shaving in the morning?) but as Erax said they can change in the blink of an eye. So they key for me is to be flexible and have fun. I find myself being overly cautious at times, hoping that my main characters don't get vaporized, and I take less risks in the game.
To keep track of my characters, at the end of my story I have an information section with all sorts of notes about the galaxy. It lists character names and details, military structure, system information, ship losses to date, and a host of other things. I generally check here to ensure that I don't suddenly replace one ship's captain with another.
As I read back over Remorhaz, I find it interesting to watch how the writing itself shaped the story...I started out with a narrative that had many references to the game, and then moved to an event by event format, to now what is basically a novella. Who knows how it will turn out, but the biggest key for me is that I have fun doing it, and that people are enjoying and responding to it. After all, writers write for their audience, no matter what they say.
Good luck and I look forward to reading your work!