Game Developer Magazine (http://gdmag.com/) had a real great article about Valve's process and practices that they used to produce Half-Life 2 (Nov 2005 issue). Go get your hands on the article it is really an interesting read.
Their process incuded many elements that are also found in Agile processes. They used a lot of prototyping and interations in the development. The iteration strategy really paid off for them. When faced with trade-offs they favored reducing scope to get more iterations. More iterations forced them to reduce the overhead costs of iterations. Having more iterations helped them increase quailty, experimentation, and enabled them to delay decisions until later in the process. They said "Decisions made later in the project were always better than decisions made earlier."
Their team culture is also very interesting. They worked in small 4-5 person teams (Cabal). Each Cabal shared an office space to increase communication and avoid getting side-tracked. They discouraged "sole ownership". They promoted positive competition between team members and across teams. Also they created demanding comsumers for everyone on the team.
I've only touched on some aspects of their system. You'll have to read the article to get the full story.
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