Past week I've been playing about with time of day features. One addition I've added is lights on the windows and doorways that come on when it gets dark.
Example:
Time of day will affect every NPC in the game. One I've recently done is the owner of the Dragons Den Inn. He'll get up, spend the latter part of the morning cleaning the pub windows, around lunch he can be found inside with a broom in hand, from 3pm he'll be behind the bar serving drinks till midnight when he closes the place up. Some characters will only make an appearance during a short period each day. For example, one of them goes fishing by the ferry (despite the NO FISHING sign) late at night while the ferry owner isn't there.
That sounds really interesting! I hope you have some kind of sleep-method in the game ala Far Cry 2, because if you've missed some peep you wanna see and he's gone and you have to wait 5 hours to see him again - that would suck