So in other words, you want better AI
Concidering conversations no longer freeze the game, other NPC's might take offence to an NPC's comments.
Pretty much what it sounds like. I'm not certain whether NPCs will react to other NPCs talking about them or not, but it does leave open the possibility for more logical reactions. And this wouldn't be the first time Oblivion has been criticized for the AI not handling conversations very well, though mostly NPC conversations. It was a nice idea to have NPCs have conversations with each other, but in practice, the execution could at times produce very ridiculous conversations.
I would like any one to name a game where the ai allowed npcs to react dynamicly based on what they hear others say when they are near or not. thats hardly an issue with TES games, rather just an issue with rpg npc's in general.
I can't name any. Obviously, there are prescripted conversations like this, but I've never seen it handled dynamically before, so perhaps a better solution would be to have the game detect whether an NPC in question is within a certain distance during the conversation, and prevent any dialog speaking ill of that person being mentioned if he is entirely. Of course, if conversations don't pause time, this doesn't prevent the NPC from walking over and coming within earshot when the line has already started.