To facilitate training and planning for medical procedures such as prostate brachytherapy, we are developing an interactive simulation of needle insertion and radioactive seed implantation in soft tissues. We describe a new 2D dynamic FEM model based on a reduced set of scalar parameters such as needle friction, sharpness, and velocity, where the mesh is updated to maintain element boundaries along the needle shaft and the effects of needle tip and frictional forces are simulated. The computational complexity of our model grows linearly with the number of elements in the mesh and achieves 24 frames per second for 1250 triangular elements on a 750 MHz PC. We use the simulator to characterize the sensitivity of seed placement error to physician-controlled and biological parameters. Results indicate that seed placement error is highly sensitive to physician-controlled parameters such as needle position, sharpness, and friction, and less sensitive to patient-specific parameters such as tissue stiffness and compressibility.