I do it all the time.  Don't get me wrong, I plan out the general plot lines, but the players rarely stick to just the plot line.  We'll go 3+ sessions of them getting back on track because they went some way I hadn't planned for and then we have more fun improv then the planned out lines.

Half my games are improv, I plan for almost every possibility but never the less my players manage to find or do that thing I never thought of or planned for.

I keep a roster of npc names and races for the inevitable encounters in a city because a player got a wild hare and decided to go off on a tangent. I have even built an entire small town on the fly when another DM had us pull from a deck of many things and our fighter got the deed to a small keep. Instead of the next adventure she decided to go check out this keep and make it her base of operation. Well I rolled with it had the keep infested with bandits the party had to clear out then had followers show up based on her reputation. Every time they came back from an adventure more and more people were there and slowly they formed a town as the local LG clerics decided to ask to build a temple in the keep to service the growing population and of course they would improve the decaying structure as they did. It was a fun down time as our fighter slowly learned she would have to become lord over these people and all the responsiblity that entailed. She was playing CG and a great roleplayer so this was right up her alley.

I have never run a published adventure so naturally my players take me by suprise often. I am forced to improvise often in my campaign. I'm no master of improvisation but I can usually at least keep things rolling, and it often results in very memorable, fun situations.