This is a very interesting topic!
In my opinion this is one of the key features that differs a boring robotic static game from an immersive game!
I like when NPCs don't seem to be attached to a ball and chain or even worst, statues.
- A famer that never works. An innkeeper "statue" behind the counter. A fisherman that never throw a fishing rod;
- A tavern that never have people inside, or the same 2 or 3 drunk guys forever. A big realm, with a lot of vendors, always with stores empty. Almost no people walking by the streets. "Ghost" villages, with one or two houses and no people walking there and 1 vendor that buys and sells everything;
- And the worst of all, I believe, vendor/quest NPCs that are moving around stop when you talk to them, but get away after just a few seconds while you are reading the quest or buying/selling some stuff and you have to keep moving with them to continue;
- Honorable mention: The frozen guard. You are being attacked by wolves or even BANDITS, near them (sometimes right in front of them) and they do nothing.
Those are the kind of things that brake the immersion.
Now, just a few things that could make the game alive that comes to my mind, imagine yourself playing a game with the following:
- You are walking in the road and a farmer/vendor/civil that you helped waves to you, maybe say "Hi adventurer!". After doing a lot of quests for a city/village, helping them, some guards wave at you, remember you. They don't need to be good to every new guy that arrives, but they know who helped them;
- Vendors that don't sell/buy every single thing. It just doesn't make sense you sell 3 bags full of stuff (ore, animal parts, mystic stuff) to the guy selling bread and water in a small village. Or sell you broken plate armor to a cloth seller. Imagine that only a few crafting/gathering specialists have specific components that you have to buy to craft some special items and you have to visit them. You will remember them, you will be creating a bond with them, you will always know where who they are and where they are in the big cities;
- Buying from a vendor with frequency will increment your reputation with him/her. You can have discounts, you can sell better;
- Random small events in the street. People talking, people fighting, people walking;
- Now that is really greedy: Day/Night/Season cycles. At night less people working and more people at tavern/home. In summer season, show the heat, change colors (yellow, red), the climate feeling, people wearing summer cloths, in winter maybe some blue tone, maybe some snow or cold wind, people wearing coats.