I've noticed that walking, shooting, or doing anything when the fps drops even from say 60fps to 40fps becomes slower... Or am I just crazy?? I'm used to jerkiness and loss of fluidity when fps goes down not a literal slowdown of the game!!!

You are not crazy. You can exaggerate the effect by setting the iFPSclamp to 20 FPS in the ini file. (In offline mode or Steam will reset it.) The higher above 20 you go the faster you will move. Works in the opposite direction to. Same thing happens in Oblivion and Fallout 3.

When I go into the saloon, with FPS hitting the 80's (Until I look at someone.) my character speeds up quite a bit compared to just outside were I am getting 35ish FPS.

I'm praying they build, or buy a new engine for future TES/Fallout games. This one is past it's prime and ready for the glue factory so to speak.

I don't think that has as much to do with the engine as it does with consoles. Correct me if I am wrong but normally console games are hard coded to work at a certain fps (music, sound, animations only work correctly at this fps) and anything higher or lower than that fps will cause the game to slow down or speed up. I think thats what we are seeing.

O yea, this always bothered me in the current engine Beth and Obsidian are using.....really feels unpolished.

As a matter of fact...Fallout would have very comfortable gameplay and movement feel, if it used MW2 engine.....MW2 isn't perfect but the way you move and navigate through the world feels very smooth for me somehow there