I find it easier to accept that a given NPC is so awesomely tough nothing can kill him until his task is done, than an NPC that is awesomely tough that nothing can kill him until his task is done except by an extremely obscure exception, such as Only One Person In the World able to kill someone.
Which is why I prefer that any NPC can be killed at any time. If the game kills an essential NPC - too bad. If it's a straightforward quest (like buying Rosethorn Hall in Oblivion, which could be broken if Shum fell through the bridge to the castle), then maybe put a contingency plan or two in place.
Really - this comes down to quest design. One of the basic problems with Oblivion is that almost every quest has to be finished one step at a time, in a specific order, without skipping any steps and with no alternatives. If the quests were more complex to begin with, with multiple paths and multiple ways to complete them, then the vast majority of those "essential" NPCs wouldn't be essential anyway, or, more accurately, they'd only be essential to one particular path. There should be multiple paths anyway, just to make the game more dynamic, and a great side effect of that would be that it'd settle the issue of "essential" NPCs.
Having quest items only spawn at the proper stage is annoying, because it leads to backtracking. Where goes the open world when conversations like this occur:
Quest-Giver: "Go get the MacGuffin from the Evil Tomb, where it has been locked for thousands of years"
Player Character: "I just got back from looting every nook and cranny from The Evil Tomb. The MacGuffin is not there."
Quest-Giver: "Well, it is now, because I need it."
I'd agree with that, which is part of why I'd prefer a conversation that went like:
Quest-Giver: "Go get the MacGuffin from the Evil Tomb, where it has been locked for thousands of years."
Player Character: "I already got the MacGuffin, but I didn't know what it was, so I threw it away."
Quest-Giver: "..................... well.................. you're an idiot then and there's nothing I can do for you, so go away."