If a character does numerous good deeds and is a noble hero should he/she be praised when greeted by towns people? And what if he/she is a wicked and cruel lawbreaker? Will NPCs be terrified that an evil madman has approached them?

I've been wondering how people will think of your character based on what they've done. It would be great if your character can be an inspiration to a town or make them cower at your evil ways. People should look at your character and see that saint who saves lives or that demon who takes lives. The reputation of a character should be known by many.

One questline in Oblivion always annoyed me. I had just finished saving all the land from mehrunes Dagon and I enter the arena. Owyn acts like I'm some nobody who never did anything amazing. Was there some sort of goverment cover-up to the oblivion gate crisis so I wouldn't be recognized? The only people who know I am champion are the towns folk when I ask them about rumors. I like to walk into a city and everyone notices that guy who saved the world.

The only person who ever gave me alot of praise was the adoring fan *shiver*

Yes and no, not everyone would know who you are. I think that people should respond to your deeds if they saw you do them or if you have a conversation with them and it comes up, and just the same they may not believe you are who you claim to be.

Its because the Adoring Fan is the only one who actually recognizes the PC for what he/she is, the avatar of a god who could destroy the universe at any second just by pulling the power plug.

There should also be different types of reputation or different ways it is shown. I mean whether you are known or not if you are some high level slayer in full daedric armor with a giant sword some random towns person should not be rude to you just because your reputation is low with them they should fear you or show some respect to someone clearly superior. If you are known as a brutal fighter or skilled mage or whatever npcs should not always stare at you with a dirty look just because you have not charmed them with high speech craft or bribed them they should act like they do not want to anger you.

I sort of agree with this, I always found it irritating when I'm a level 38, with full daedric, Umbra, and with maxed out stats, that an npc who I could kill in one slash would insult me without the slightest hesitation. In fact, that's why I'd kill people then reanimate them with the staff of worms, mua ha ha ha.

NPCs should react to what armour you're wearing. And if it is a bit distinctive (not a default,low-level armour), and you've worn for many of your heroic deeds, or if you have a valuable weapon that you use the NPCs should recognize you based on those. They shouldn't instantly know who you are, you would have to tell them who you are or they should recognize you based on your gear. In addition some delay on the spread of your reputation would be nice.