Few do a better job at audio theater then the folks at CRT. Their blend of story, acting, sound effects, and music are truly amazing theater of the mind. Some of their titles include The Legend of Sleepy Hollow, Powder River, Captain Blood, the Oz series, and many more. Check them out to see how Audio Theater should be done.
A site devoted to everything audio theater, FinalRune is not only an excellent resource for theater of the mind, they also produce their own original material and do a pod cast on the craft of audio theater.