We had natural transitions from any state to dialog in one of the earlier alphas. Unfortunately for it to work under any circumstance it meant there's a new transition state between minding-my-own-business and actually-ready-to-do-talking and this transition took way too much time way too often. It also meant we couldn't place the player in better position for dialog camera. The dialog had to happen wherever player was when the NPC reached the state actually-ready-to-do-talking (and if player was still close). It was wonky and grew annoying quickly.
All that because you wanted KCD dialogues to be dynamic, like mini-movies with "acting" and different angle cuts, ála Witcher 3? The Skyrim solution ("in-game" dialogues with no special fade-outs, camera angles, gesticulation etc.) was never in the cards?
Funny that you mention Witcher 3 beause their dialogs are super static. W3's approach to dialogs is that they are actually mini in-engine branching cutscenes. They are predetermined to happen at a certain place with manually setup cameras, with predefined starting point for every animation involving movement, and with environment complementing the available animation set. This means:
- Dialog actors or "side shot actors" (as in one camera shot during the dialog shows a bartender watching you, because ZOMFG cinematix!!) must be nailed to the spot (or a tiny area so that their teleports won't feel dissonant) where the dialog will be triggered. Or they don't exist and will be spawned in mid-dialog.
- You cannot disrupt these situations by any interaction so there are no interactions with civilians. You can't attack them, steal from them, and they cannot react in any way to your actions. The biggest reaction you'll ever see from a bystander is cowering/raising hands, turning and shouting, barking. That's it.
i.e. the civilian NPC world in Witcher 3 is almost as interactive as the skybox.
Our NPCs can be anywhere, can react to anything and you can attack them, kill them, steal from them. Whatever. Making W3-like dialogs in KCD is impossible due to this interactivity.
(BTW we could do W3-like dialogs. CryEngine has a tech call TrackView which is very similar to what they use but we use it for pure cutscenes. All we'd have to do is run the dialog system in parallel and allow different dialog sequences to jump around the cutscene checkpoints and play the correct cameras, show proper lighting etc.. The result would be almost the same.
Despite all of that they do have a backup dynamic dialog system in place. I've seen it in action with Crach an Craite where the dude just started walking to some other location while a dialog option with him remained valid.
The system is apparently very barebones. The NPC turns to you violently, clothes failing everywhere, cameras are off, framing is all wrong. It's similar to what we have but really terrible.
Anyway, to answer your question finally.
Skyrim style was never on the table. It looks quite bad in many situations.