Alice 2.0http://www.alice.org/Free, Open Source.
Alice v2.0 is the next major version of the Alice 3D Authoring system, from the Stage3 Research Group at Carnegie Mellon University. It has been completely rewritten from scratch over the past few years. The focus of the Alice project is now to provide the best possible first exposure to programming for students ranging from middle schoolers to college students.-Alice Website
Example videos of the program can be found here:
http://www.alice.org/Alice_movies/Alice uses it's own programming language that is mostly completely visual (drag and drop) as an effort to help absolute beginners to programming learn basic concepts while allowing them to see instant, visual results. A 3D "Hello World" program is much more impressive to a beginner than a simple text output.

Object placement is easy using the built in world viewer. It has buttons in the upper-right corner that allow you to move the object horizontally (along the X and Z axes) and vertically (Y axis), rotate them, resize (scale) them, and more. The program comes with a built-in gallery of objects (at the bottom of the screenshot) and even lets you connect to the online gallery from within the program. It is streamlined, as if the files were already on your computer, except there is some download time to place them into your world.

My personal experience with it is that it is very exciting to see what can be done so easily, except it it so easy it's hard to figure out. The program comes with four tutorials that show you how to use the GUI and covers some basics of making objects move across the stage. However, these tutorials teach very little about how to actually piece together your coding in ways that go beyond the very basics of actions. Documentation on how to make your own functions, how to pass variables, etc. is practically non-existent. I can't find any websites with Alice tutorials or documentation. The only thing I've been able to find are a couple of books that are between
about $25-$45 on Amazon.com. I also found the books on the SafariX website, but they cost just about the same thing for the equivalent of a rental. Not worth it to me, especially for a programming reference book.
At first I thought development on Alice was dead, but there is a
community forum that gets a few posts every day, one of them very recently talking about the updates on Alice v3.0. This forum is also the only source of free help I can find on how to use the program. There are a couple of people who seem to know it fairly well, but a lot of the time it seems they're just trying to figure it out themselves.
It seems powerful enough to make relatively simplistic games, if you can figure out how to work it, and may be perfect for beginners to manipulate 3D objects with instant results. But for a powerful, make-any-kind-of-game-you-want type engine, it's best to look elsewhere.
Overall, I would like to use it a lot more and get to know the controls and what the limits of it actually are, because it looks robust enough for a decent one-player game. If only I could figure out how to keep the motion I create from being all choppy (I don't know how to get the animation to transition from one motion to another without a pause in between them), how to use variables, create my own functions, or even type in my own code using the internal syntax that I'm sure is being used underneath all that drag and drop stuff. I'm hopeful that the books would describe how to do all of these things (except typing my own code, which I just don't think is supported), but again, the price just to learn it is a bit steep if you only find out that it's not good enough to suit your needs and you never want to touch it again.
Pros:- Free/Open Source.
- Instant results.
- Very little/No coding experience required.
- Installation free. Just unzip and run.
- Online forums where you can ask questions and hope somebody else is there to answer.
- You can import files from other modeling programs like 3DSMax that export into .ase format. There are also some utilities you can download that will convert some formats into .ase, so just because the modeler doesn't do it, doesn't mean it can't be done.
- It has the ability to connect to a VR Headset for more interaction, though I lack the know-how and technology to figure out how to do that.
Cons:- Other than 4 very basic tutorials and a couple of example worlds, almost no freely available documentation on how to use it.
- It's not completely stable. It crashes sometimes, but most of the time just reports an error and you can try again. (It has a SlowAndSteady mode, which is supposed to be more stable.)
- Online forums where you can ask a question and hope somebody is there and will answer.
- Practically no documentation on how to use it.
- Not designed specifically to make games. Its primary function is for storytelling.
- You can't export it to a stand-alone exe file. You record a movie of it (but you need your own video capturing software) and take screenshots, but it can only be run (and thus interactive for a game) within the Alice program.
- No advanced mode that allows you to type in your own code.
- Oh, and did I mention it has practically no documentation on how to use it?
Summary: It's exciting to see something in which you can have such instantaneous results from without knowing all the details about how to manipulate objects in 3D space. It's great to be able to put an object on the stage and use some simple commands to get those objects doing things. Unfortunately it's a bit frustrating to see this program seem so simple to operate but then have a hard time figuring out how to use it. That coupled with the lack of documentation included with the program (not even a help file that describes the classes and methods used within the program) or online, and the fact that the only way to find comprehensive help on the subject is to shell out $25-$45 dollars is disheartening.
Here is a link to videos of projects made with Alice, along with a description of the curriculum used:
Building Virtual Worlds.
(most of the images are broken, but most of the videos I tried worked.) Be sure to check out the Calvin and Hobbes video (it's a little more than halfway down) if you were ever a fan of the comics!
EDIT: I posted a link to this thread in the Alice Forums, and a couple of people
have responded with their opinions and suggestions to add to this mini-review. Alice Forum member DrJim's opinion regarding Alice for creating games is a simple "Don't." For some of the reasons I already listed, being that you can't export Alice worlds to anything beyond HTML and a video capture. Mr Nemo agreed about Alice's primary use being something different than to make games, but pointed out that two-player, head-to-head gameplay was possible (see Spy vs. Spy video from above Building Virtual Worlds link) and that while Alice cannot export into a standalone .exe, it is freely available on the internet for anyone to download and run. He also reiterated that since Alice is open source, a person who was adequately motivated could indeed modify the code to provide more support for game creation.