Sounds promising ~so long as they don't spawn out of the blue every time, or have precognitive insight.
(If my PC kills five in a bandit cave, it'd be awful to run back to town and be greeted at the entrance by angry kinfolk ~or even at the gate to the cave).
The Radiant Story system also helps deal with untimely deaths. Predicting player behavior in an open world is tough, as many often stray from the main quests and get into trouble by murdering quest givers. In Skyrim, if you kill a shop owner who had a few quests to offer if you spend the time to get to know him, his sister may take over the shop and offer the quest that was formerly ascribed to him. The quest logic automatically picks up with pre-recorded voice work because Bethesda already assigned her that contingency role. Tread lightly though, because she's not oblivious to your dastardly actions. She will still recognize you killed her brother and perhaps even try to exact revenge later in the game.
http://www.gameinformer.com/games/the_elder_scrolls_v_skyrim/b/xbox360/archive/2011/01/17/the-technology-behind-elder-scrolls-v-skyrim.aspx?PostPageIndex=2
It sounds like the NPCs won't spawn out of the blue - they'll already be in the game, but have that "contingency role" pre-assigned. The thing I'm worried about is whether this happens
too often - this would be a bit like immortal NPCs under a different guise.
As for magical detection - agreed. Hopefully it works something like this: you kill an NPC, but you are detected. If you get arrested by a guard and go to jail, then when you get out/escape perhaps the NPC's brother tries to kill you.