I like everyone's ideas about making NPCs treat friendly fire like, well, friendly fire.
Another request I'll add to this thread is to add options to NPC and creature AI for recognizing when the player has a height advantage. Currently, a low level player can take out very high level opponents by simply jumping onto a rock. The opponent keeps running around in front of the rock while the player slowly ticks their health down with spells, arrows, or summoned minions.
If a creature were to recognize that enough time has passed where they did not get significantly closer to the player, but the creature's health managed to go down, then a few things could be tried. Such as jumping, switching to a ranged attack, or fleeing.
This may or may not be related to this mod idea (it kinda falls into the "friendly fire" notion), but a few times I have experienced the game treat the humanoids of the Oblivion realm as NPC's that can be "murdered" and "assaulted". After clearing out an Oblivion gate, Imperial guards treated me as a murderer and the Dark Brotherhood paid me a visit.