This seems intensive, but here is what I propose:
When any NPC sees you commit a crime, they are 1st tagged. All NPCs who witness the crime first hand get 1st tagged. 1st tagged NPCs all run and seek out the nearest guard (or not, depending on how much they like you and/or their morality level). When a 1st tagged NPC gets within X feet (maybe like 4 or 5) of a guard, the guards now know and will try and get you. Any NPCs the 1st tagged NPCs encounter have a chance to be 2nd tagged depending on the 1st tagged NPCs new "integrity" stat. The higher the integrity stat is of the 1st tagged NPC is, the more likely the 2nd tagged NPC will believe them. [snipped for space]
I agree with all of that. And when the guard is told, the other guards wouldn't automatically know either. The guard would have to tell other guards, or come running to the scene all by himself.
Another level would be if the 1st tagged NPC is skilled in combat (and thinks that he can best you), instead of running for a guard, he decides to confront you instead. If an NPC can approach you for training (as mentioned in GI), the mechanic must be in there for an NPC to guesstimate their skill level compared to yours... which could be how they'd decide to run for a guard, or take the law into their own hands. There's lots of possibilities.
If you want to get crazy, you could throw in variables such as NPCs who wouldn't want to get involved no matter what. Those who would only react to a serious crime, and wouldn't care about a petty crime. Those who only care when something happens to their or their friends' persons or properties. I'm beginning to delve into The Elder Sims V: Skyrim, but that dynamic would add a ton to the immersion. I guess we'll have to wait and see how radiant the new RAI is.
I really do like how you laid it all out, though. It would seem like the most realistic way for news to spread. I looked high and low in Oblivion, and I never did locate the security cameras in every room, nor the bluetooth com system the guards and NPCs were using. I also didn't find any PreCogs from Minority Report.