NPCs are another difficult problem in MMORPGs. In most game, they are sprinkled liberally, handle most economic interactions, and are rooted to a geographical location. They are undynamic, predictable, and tend to add very little to the game. Again, I think only one game reall got this right, and even then only after getting it wrong. Ultimate Online at first saw NPCs the way most games do. They are filler. They serve as town guards, a source of services, and quest givers. But all of these roles became purely functional, lacked any flavor, and ultimately rendered them necessary evils. You had to use them if you wanted to do a good deal of stuff in the game.
But this problem was slowly circumvented over time in two ways. First, the players created their own towns and economies, and second, new NPCs were created that were put in the players control. You could hire merchants to sell your wares at prices [i]you[i] set, meaning a real economy started to grow that didnt require the constant presence of the player themselves (not unlike the real world). A succesful entepeneur would often have merchants around the world displaying their ware.
I think that similar roles could be given in the case of mercenaries, guards, soldiers, sailors, miners, farmers and other "labor" positions that would help populate the world, without impacting its balance. Guards would be very weak, relevant only as protection for a traveling merchant against attack. Soldiers would be as the lowest level characters, relevant in battles only in great numbers, but at significant expense, with the necessary logistical support making them impractical for anything but large engagements.
City streets would be populated with these NPCs for hire (and other flavor NPCs that are jsut there for looks to wander around the world)in addition to the players, giving the world a fuller, richer look, while making NPCs a thing that impacts and interacts with the world instead of being static entities that amount to little more than vending machines with clothes. In short, they retain the Character implied in the term non player character.