Here's a video I just made explaining it all:

http://www.youtube.com/watch?v=8BvL-syDOew

What's happening is whenever an NPC comes on screen my GPU usage falls to 0% and my frame-rate goes to hell. It never recovers unless I close the game, even if the NPCs leave the area.

System Specs:

Core i5 750 @ 3.8ghz
ATI 5850 @ 900/1200mhz
4gb DDR3 1333mhz
750gb 7200rpm HDD
WIndows 7 64bit

I've already tried:

Re-installing drivers
Disabling sound
Re-installing the game
Installing the quiet footsteps mod (at the advice of a forum user)

Any help or suggestions would be appreciated.