So I recently noticed that a LOT of npcs are talking about "colors" whenever I'm around, usually saying something about a "dazzling display of color."

WHAT THE HELL ARE THEY TALKING ABOUT?? xD
I seriously can't figure this one out. It seems to have been something they added in a recent patch, though I'm not sure which one. All I know is ever since I started playing again maybe a month ago I get these really random commnets about colors almost all the time no matter what I'm doing or where I am. Kill a dragon? "The colors!" Talk to some dude, woman walks up "Colors!!" Run into a random hunter's camp and kill the troll attacking them "What a display of color" @_@

There are no random displays of color unless someone has a dodgy video card or drivers or a bad mod install.

Unless of course someone is talking about a battle between mages, those can get quite colorful.

The only time someone mentions "colors" to me is like if I'm casting a healing spell on myself.

they aways cry colors when you are doing some spells (light, healing, ect)

Always happens when I have candle light casted

... and when my argonian is in town: http://pix.toile-libre.org/upload/original/1338906851.jpg

I guess that's it. I never used spells much on any of my previous characters (except for a flesh spell as soon as combat starts), but now I'm using bound weapons and cast a lot more spells than I used to (because going from 0 to anything is a big difference).

I think all of the NPCs in your game are on LSD...

What I said about spells earlier? I take it back.
You're probably right.