Fallout 3 and Oblivion are the best examples (as others have mentioned).
Fallout 3 had a very arsey population because most of the time they act in such a shakey and unrealistic way that you can't always be 100% on what they are exactly doing (when I elected to teach everyone in Big Town to sneak to help them avoid future attacks they all just started crouching and milling about, I had no idea what I was supposed to be doing since I tried talking to all of them and they just came up with their standard dialogue, I figure my job is done so I leave and later hear on the radio that everyone was slaughtered soon after due to my neglegence).
Oblivion had a very unique problem in that guards were always instantly aware of your crimes (do a bit of littering and the guy who's half asleep at the other end of town still picks up on it) which meant that intentionally commiting crimes (because, for instance, you want to try being evil or being a member of the dark brotherhood or thieves guild) is more difficult than it should be and largely unrewarding. This also meant that accidental cases of friendly fire (which are bound to happen due the every friendly NPC's habbit of running right into the thick of combat, usually taking the route that goes in front of you) were no longer cases of 'sorry man, I was aiming for him' followed up by a healing item or spell, now it carries the death penalty.
A big problem that both of these games had was that they tried to have a complex social system where NPS's react to crime, injustice and your reputation. This sounds like an interesting idea at first but it seems that it was just too complex to work smoothly or naturally.