I don't think you should, for the record. Blocking should be a Shield only option.
But... Combat and NPC interaction are two very lengthy topics, and trying to discuss both at the same time makes as much sense as the giggly ditz's they have on the bridge of the SDF1 in Macross...
So, since NPCs and interaction were the primary focus of previous discussion, i'll keep on that topic...
Returning to the Daggerfall model, in full, isn't really viable, at least in a full Voice-Acted system. It would require too much work and eat up so many lines that you'd have very little resources left to use for actual quests... That said, it is possible to cover some basics, and allow for some randomisation, without breaking the bank. Again, the emphasis should be on Interactivity, Permanence, and Purpose. They must be interactive, they must 'Go' somewhere (IE no despawning when you just wander out of range) and they can't just stand around and take up space (as so many of the 'NPCs' in Assassin's Creed do).
The first step would be to divide things into Primary and Secondary NPCs.
The Primary NPCs, of course, are the ones that have the more extensive development, are more quest-related, and have more explorable identities. They are more extensively affected by disposition, and are the ones that you are ultimately going to spend the most time engaging with.
The Secondary NPCs are, of course, the core of this discussion. They're the backdrop that adds numbers, but they still need to have some degree of development. As a sometimes-DM, I've done my fair share of making these kinds of characters, there are some guidelines that need to be fulfilled when designing filler NPCs. They need a name ('Farmer' isn't good enough), they need a place to live, they need to have some kind of knowledge of the area, and they need a job.
If you're building somewhat randomised NPCs in a Voice Acted situation, you're not likely to be able to have them actually SAY their names. However, we get floating names above peoples heads most of the time anyway, so that's not too much of an issue. But they should 'recognise' what they do for a living, and where they live. As my brother's Barbarian would say "What do, where live?". This is somewhat easily resolved by having set 'Job' types, such as Fisherman, Miner, Farmer, Noble (Which would probably be replaced with something like "Oh, work, what a quaint idea") and so on that is recognised in a line of dialogue. Housing can then be divided by city sections. Rather than an NPC identifying their home as "I live at 1420 Quarry Street" it can be as simple as "I live in the Lower Ward". The ability to acknowledge relationships and house-mates would be awesome here, but not necessary. So, for the ability to recognise the 'Self' you would require 2 lines of Dialogue, one for what they do, one for where they live.
Then comes the trickier part. They need to have some knowledge of their surroundings. I generally divide this up into 2 parts; Locations and People. Even the lowliest dock worker in 1860 London knows that the Prime Minister and Queen are SOMEWHERE in the city, and are largely in charge. An NPC being able to say "Well, the Jarl live up in Dragonsreach" creates a sense that they are aware of the important figures in the city. They shouldn't be able to list off everyone in town, just the prominent figures and where you may find them. Similarly, they should recognise major landmarks either in, or around the city. Knowing where Jorrvaskr and Dragonsreach are, for instance. All said and done, this can be as little as 2 lines of dialogue, but i don't think should ramble more than 5.
And, of course, they need a goodbye.
So, to create a generic Secondary NPC, you can tick all the necessary boxes with between 5 and 10 lines of dialogue. Spread a few variations over several voice actors, and you can reasonably create a diverse spread of identities for comparatively little work (one work-up i've done could turn about 16000 lines of Dialogue from 20 actors -for reference, that's about as many as both PC's had in Fallout 4, EACH- into more than a million potential NPCs. Shallow, yes, but leagues better than a cardboard cutout. Placing those NPCs, and building the cities around their presence, also opens some doors for modding, making it easier to integrate fully-fleshed out NPCs, made by Modders, into the world. Just replace one of the random-gen NPCs with a custom one.
And this is where utilising Radiant AI can really shine. Because you're combining fully designed dialogue responses, you can avoid the weird, directionless combinations of Oblivion (though i think the Voice Acting in Oblivion was probably plagued more by lack of directing than poor assembly, the more i look at it...). The fact that you're using Radiant Behaviour to set up the behaviour of less important NPCs also means you can take some more liberties. As long as they go to work and go home, you can add more variety to their other behaviours, since you don't really have to worry about them not being where needed for quest tracking or scheduling.