Once upon a time, a rather angry poster came to the forums, ranting about the horrible, terrible, miserable, piece of crap game that was Morrowind.
He complained there was nothing to do. There were no quests, no jobs anywhere. Guards were always after his pc, everywhere.
After a series of questions, forum regulars figured out why he was having such a horrible time playing Morrowind.
He created a custom class; Murderer. He killed any npc he thought "dissed" his character. If he saw an npc with armor or a weapon he wanted, he killed them for it.
He killed just about every quest giver in the game, along with most of the named npcs that don't respawn. Even if he hadn't killed the quest giver, he had killed whoever you needed to talk to, find, or make the delivery to. The guards were after him because of the death warrant, the ordinators were after him simply because he kept killing them for calling him "scum".
When we pointed out that he had to have seen, several times over, the "You have severed the thread of prophecy" message, he admitted he had, but ignored it, since "you can do whatever you want in a Bethesda game." We told him the reason he couldn't find any quests was because he killed everyone. He couldn't finish the main quest because he not only killed Vivec, he killed Yagrum, Fyr, his daughters, most of the Ashlander clans, and most of Houses Hlallu and Redoran. He wiped out the wierdos who live in the mushrooms without stairs, too, but the Telvanni are the only ones you can kill without borking the main quest. He was absolutely pissed; you were supposed to be able to play the game your way, and his way was to kill everything and everyone. Bethesda should have considered that some people wanted to play that way and still make it possible to finish the game. He didn't appreciate finding out that there was an alternate path to let you finish the game, except that he killed everyone involved in that path, too. It was entirely Bethesda's fault for allowing him to ruin his game. I don't think he came back to the forums after that.
I don't think I want everyone essential. If things happen outside the player's control like in Oblivion though, it might be necessary to have some of the npcs set as essential, at least until you don't need them for a major quest anymore.