NPCs in the Din's Curse expansion now have three things that drives their lives: happiness, money, and their relationships with others. This is going to sound like the Sims for a bit, but don't worry I will get to the point soon.
Happiness is just how happy they are with their lives and with the town. When they get really happy they are labeled a local hero (I still need a better term) and get a large bonus to combat. If they get really unhappy, they will eventually leave town or go renegade. There are a ton of things that change the happiness of the NPCs: winning when gambling, talking with other NPCs, friends/family dying, gossip, flirting, etc.
Money is what it sounds like. NPCs now keep track of their money. When they give you a gift that costs them some money. They need to eat occasionally and that costs money. Drinking and gambling uses up money. They do have jobs and ways to make money normally to balance this out though.
Relationships are also pretty common sense stuff. Each NPC keeps track of how much they like each other NPC, anywhere from hate to love. NPCs can even get married and divorced now.
So far this all sounds like the Sims doesn't it? Well happiness, money, and relationships are just the way to get the NPCs to interact with the world and the player more and in fairly realistic ways. All of the little daily things they do isn't too important. What is important is what it leads them to do. Note: all of the previous stuff works so far.
Now here's the parts I haven't fully implemented yet, but here's my thoughts about where we are going to go. When NPCs get really unhappy they will start doing riskier things like gambling and drinking. They are also much more likely to betray the town in some way or another. When they get into debt they will start acting more and more desperate. Some might be fairly honorable ways like trying to solve quests in the dungeons, but some will take more evil paths by betraying the town for gold or even stealing from their fellow NPCs. When they run out of money they can even starve to death. When someone really dislikes or hates someone they might even get into fights with them (or maybe they were just drunk).
This last part is where the player starts getting involved. You might need to figure out who poisoned the town's water supply (and then fix it) or who stole all of George's gold. Fixing Sham's starvation will be easy, but you probably don't have much time to do it. You might even need to break up fights to prevent them from killing each other.
I'm also thinking of a bunch of world modifiers that impacts all of this: poor town, rich town, seedy town, gamblers, misery, etc.