There are different schools of thought, of course - but I think very few people still think the authors were in some prophetic trance while they wrote. They are too aware of their immediate situation and the implications of their acts to be just scribbling away supernaturally. There's too much "back and forth" going on.
I often wonder what a "sequel to the Bible" would look like, covering the time after the apostles to the present. The belief has always been that God only speaks through prophets, and they always preached a way of life, of listening and doing. THis was the first intention. The second intention was that what they said should be preserved and held on to - to such an extent that it was considered "law". God's word was, very literally, law. It was only later and secondary that these laws very actually written down on scrolls or clay, and even then the oral tradition was thought to be superior.
So what we have of the Bible (at least the Old Testament), is the written form of a way of life that was intended by God. While it was crucially important to preserve the words themselves (so crucial that it was prohibited to change any letter or diacritical mark), the application was what was supposed to be preserved. The Rabbi's could interpret and make pronouncements with limited liberty, because the "basics" were always there to guide them.
I picture it this way: God always singled out the so-called "righteous" - those people with integrity and moral lives in spite the current culture and moral atmosphere. They were people whose way of life was "faithful to God", and this faith dictated their actions, and not the other way around. To these people, God impressioned upon them to preserve that faith, to protect that way of life, and God would protect and preserve them himself. So in essence, "righteousness" and integrity was preserved through this "inheritance" of faith. You could also trust these people to hold on to the truth in the face of even the greatest opposition. That we have what they said on paper, is only a representatin of this life, sanctioned by God.
We know that not everything recorded in the Bible portrays God. In fact, frequently it describes in great detail and for long passages just how far people had drifted from God. This is because these prophets and "people credited with righteousness" were there to see and describe - and condemn - it.
We are looking at the same world we live in, through the eyes of the prophets and the "chosen" people of God. The morality was inspired, the actual people only by association (then indicated by circumcision), and the actual words only by association. The Bible is the inspired word of God as those who follow them follow the inspired life of God.
I think as the culture changed, and became more global (remember, God initially ordered His chosen people to remain "holy", dedicated to God, and not so intermingle with the surounding peoples), this type of "preservation" was diluted (the "salt of the earth"). God has stopped preserving it artificially, and rebuilt the temple (the symbol of holiness and God's presence) in the hearts of those who believe in His choosing, His life and His preservation. The only "powerful message" that is left now is the one of love - the core of all the laws - as something that we inherited from God (primarily through being created by Him, and secondarily from being born to people who preserve it).
Jesus knew this "new covenant" would produce the rift between a "secular" and the "preserved" ownership of God's love - the individual and the "church" (God's covenant). The old way of describing and sanctifying relationships between people and with God would change. This is essentially Jesus' "I bring the sword" speech. Almost like the concept of "hell" would take on a Roman meaning, the concept of Heaven would take on a Christian meaning.
The separation between God and man needed to be made explicit, as a choice - God would not impose it "artificially" anymore - but the "downside" is that people have gained the independence they always longed for. No more prophets to tell you what is right and wrong in God's eyes, no more priests to proclaim you holy or not, no more kings anointed by God... but our responsibility has subsequently increased. It becomes harded to "choose" between a Biblical way of life (which we can only now learn from by actually reading the Bible and looking for it), and a secular way of life (which might not "look" much different - you still get people who preserve morality in spite of not believing in God anymore - but becomes increasingly diluted and relative itself). The "inspiration" of God's words now lies within people who choose to hold on to God anyway, based on a system that is becoming more and more "archaic". The only "prophets" left are those who repeat the last prophesy: that God is coming to establish His kingdom once and for all, and live as if our bodies are His temple, our hearts His laws, and His anointed king our Judge and Saviour.
My own definition: Words are "inspired" if they are not alive - lived out - just like words are not "inspiring" if they are not read. "God-breathed" means "given life".
