NPCs

NPCs should not be just simple scripted blocks in the world. Every aspect of an NPC should be treated as if it was a player. It's simply a player controlled by the server. As the name implies, they are still Characters in the world, not just a quest giving system.

All NPCs should be controlled by AI servers that determine their actions, all the time. They have lives, they move around, they converse. NPCs that have needs should talk about those needs with other NPCs, or even player characters if they trust them enough. This is a great way to learn about quests. PCs can just "ride the crowds" listening to the buzz of the town to get a feel for what is needed. The game client can even help out the players by providing a "rumour tracker" type interface to show them quest starters, and hints.

When it comes down to it, you should not be able to tell the difference between a player and an NPC on the surface. There are technical limitations on conversation engines, and trees that will let you tell. But it should not be obvious as "that guy never moves, he's an NPC". NPCs should respond to in game chat to the best of their ability, as well as scripted quest based conversation trees.

NPCs should also be able to take over the same roles as players if need be. When looking for a group at the adventure's guild, some of the available classes should be bots. They take a split of the coin, their share of the exp, and roll on items they need. If Unreal Tournament can have bots that tell ME what to do and we win.. then my MMO can too. These bots could be used to help teach noobs about tactics and play styles in the low game, as well as fill in missing group slots for those that need them. If a lot of PCs are available for groups, then the number of bots can be lower, or even none, but they should be there. The ultimate goal would be to hear in game chat "I don't know if this guy is a bot, or from china, but he's an AWESOME healer".

On the flip side, if demand for a specific resource is high, but not being fulfilled by PCs, the NPC merchants can hire NPC groups to go out into the world to complete the quests, and compete with the PCs. This offers another way for GMs to balance the game economy using in game actions, preserving the fluidity of the experience. I'd even go so far as to have an NPC group leader look for a group to complete a quest to allow lower level players the experience of a properly led group.