It would be a nice way to make combat and idle states more realistic by providing more NPC behaviors. This goes from an NPC searching (not just walking around) to using dead NPCs as meat shields.

Combat

• Meat-shielding - Enemy and hostile NPCs will use dead NPCs (that were allied to them) near them as meat shields by picking them up and blocking attacks with their body.
  
• Pulling allies to cover - Critical hits should knock out an enemy in rare times and the allies of that NPC should drag that NPC to cover and get someone to use healing potions on it.
  
• Taking cover on own - NPCs should take cover while at threat of getting hit.
  
• NPCs retreat back a little - They won't exactly retreat but when you make a town go hostile the helpless people should push people out of the way and run away, dodging objects and hopping over stuff to get away from danger. Until they are armed they will do all they can to get away from you and it'll be more than just running away.
  
• NPCs help their allies - They should get in the way to block attacks and if equipped with a shield they should actually try to block stuff.

Idle

• Searching in Idle Combat - Sure searching is fine now, but it's just a bunch of walk 'n' talk. The talk should sound more frustrated and they should do things such as attacking random things and throwing stuff. When they get nervous from noise or such they call for reinforcements and slowly approach a position.
  
• Actual duties - Bartenders do their job, janitors clean stuff, etc.
  
• Bar fights / fights - Random fights break out.
  
• Meetings, speeches, etc. - Yeah.

What do you think? Do you think it'll make situations more realistic?

Wow! Would be amazing if some of this is incorporated in the magical radiant AI we've heard so much about.

One of the overhaul mods I have installed for Oblivion seemed to make some great improvements, such as enemies running away when their health is low. Not sure if this is Oscuro's or something else.

I agree!

well they've actually got actual duties covered already. as for the rest, I don't know. would be cool though

They are mostly simple animations however such as people smoking in Fallout 3 or drinking a drink. In Oblivion it's all about mudcrabs though haha. Sure they have it now but it's simple and with the new engine it could be approached even better.

My comments are in red.

I think with the new radiant AI they are talking about this stuff happens where people all have their own daily life