So, and this was completely awesome by the way. I am not complaining because I laughed for a good 15 minutes.

A dragon attacked me in Riverwood and it killed the blacksmith. He is uh, still eating dirt. Do non-quest NPC's come back?

It depends if they are flagged by the game as essential. Essential characters are usually quest related and stay dead once they're killed (so be careful who you kill). Non-essential NPCs should respawn. In Oblivion, characters could become kill-able once they had completed their part in one of your quests.

Rarely in Bethesda games do named NPCs respawn. I seem to remember one in Oblivion - some Imperial Legion quest giver outside Leyawiin. That's the only one.

You mean essential characters are un-killable, right? Non-essential NPC's are killable at anytime? usually essential NPC's don't die, they just tale a knee and then pop back up. But killable NPC's stay dead, even if I didn't kill them?

Well, I found a bunch of dead bandits at one of the dragon strongholds I was supposed to clear out. They may have wandered too close to the dragons lair and got in a fight, or their smoking bodies may have been put there deliberately by Bethesda. If they don't respawn after a few in-game days, then I would assume Bethesda put them there as decorations.

My question was more towards town NPC's, not bad guys. Though I did read a thread that said it takes around 5? in-game days to repopulate an area after you cleared it.

Ummm. No...say you killed off the people in Riverwood. they do NOT respawn. I actually did this when I was bored. Their bodies are still lying there. In OB, pretty much the only NPC's that respawned were the guards. Civilians, NEVER come back to life. There's a reason those characters are marked as non-essential.