I inspired someone to start a topic? yay!
Yes, that's a good point...
I prefer topics... Dialogue would be allright if there were more options, but dialogue still can't cover any possible character the player could make up.
In some cases dialogue might be needed though... It's hard to have a philosophy debate like the one with Paarthurnax, with only topics. Dialogue is needed - but there should be more different options, reflecting the common character archetypes. It might still be hard to find an answer that fits my character, but it would be easier to at least find something that matches their general style/attitude/view.
One thing that I like is when there are different options though generically phrased, because that gives the writer room to make the NPC react on what the player said, and also room for the player to imagine the exact wording.
Such as if you want to make NPC X make up for something bad he has done, and NPC X is unwilling to do so. The dialogue options could be something like this:
*Threaten
*Quote (religious book)
*Persuade
*Goodbye
...where the success of "threaten" depends on your level compared to his, "persuade" depends on your speech skill, and "quote" depends on whether or not the character is religious. (In Morrowind the "quote book" option comes up sometimes if you have that book in your inventory, but won't if you don't own the book. A better idea would be to have the option if your character has read the book; that way you don't need to clutter your inventory with books.)