This is my first time playing and I'm kind of mystified by the bad AI in my party. They all stand there next to creatures attacking a party member doing nothing at least half of the time, and seem to generally do erratic and nonhelpful things.

Is there anything I can do to improve this? I do have the AI box turned on on the lower right corner.

If you want to play with the AI turned on, you should choose an appropriate AI script -- the 'Default' is useless, especially in melee. Go to each member's stat page and select 'Customize'. Click on 'Script' and choose an appropriate one. If you are unsure which script fits which character properly, experiment. You can also download the superior eSeries scripts and choose one of those instead.

Be aware that using scripts on your spellcasters can be detrimental to what you might want -- spells being used at inappropriate times and places.

I generally prefer to set everyone to "default" and then control everything manually. (Except for spellcasters, who get set to "none.") The only thing "default" does is attack nearby enemies, so if I'm concentrating on another character for a few moments they can't get into too much trouble. As an automated script it's terrible, but as a stopgap measure it's fine.

In my experience even the most elaborate character scripts tend to be marginal at best, especially if you're trying to backstab someone or block doorways or somesuch. Ideally you should be controlling your characters individually and pausing A LOT as necessary. Several of the auto-pause options can make a big difference as well. I normally use Character Death, Spell Cast, Trap Found, and Target Destroyed, but End of Round and Enemy Sighted are popular as well.

thanks for the replies guys

in case anyone views this in the future, the link to download the scripts for windows is here:

forums.gibberlings3.net/index.php?app=downloads&showfile=708

for osx:

forums.gibberlings3.net/index.php?app=downloads&showfile=831

the main download link on the escript homepage is broken

Not any more. Thanks!