I prefer Morrowind's style of dialogue.

Among other things, the lack of a significant need for voice actors will cut down production costs dramatically, allowing for Bethesda to create a great deal more in terms of quests and storylines that have different branches, subplots, side stories, etc. Plus there's a lot more detail that an NPC can give me in regards to virtually anything. And I like being able to walk up to anyone I want to and ask them about who they are, or if they've heard any of the 'latest' rumors. Even though there are a lot of generic or 'canned' responses it still felt good being able to walk up to the first person I see in a new town and just get the lay of the land from that person, no matter who he is. Conversely, in Skyrim a lot of townspeople won't even engage me in a conversation about anything other than their one topic, apparently the sole reason for the existence. How is that better than having different NPC's repeat the same lines?

There's no real production cost for quests, time, writing and coding maybe, but voice acting doesn't add or remove from this, you can record those lines while you're doing the quests.
It certainly not make the game more "dynamic" people still say the exact same things over and over again, they are just not voiced. Skyrim is better in some way actually as every people in the game have their own lines, it does not come from a common selection of topics everybody say without any difference, I mean have you played Oblivion? Mudcrabs?

-Do you go to the cloud district very often, what am I saying, of course you dont.
-I work for Belethor at the general goods store.
-Do you go to the cloud district very often, what am I saying, of course you dont.
-Do you go to the cloud district very often, what am I saying, of course you dont.
-I work for Belethor at the general goods store.
-I run the fruit stall with my mom. its fun, but hard work.
-I work for Belethor at the general goods store.

While the characters in MW do tend to speak for longer, hardly any of them have anything new to say at all and are just carbon copies of all the other guys in that location. The ones with unique dialogue typically have around three topics which they'll speak on - they could easily voice act this amount of speech. As other people have mentioned in other threads, a hybrid of the two might be ideal wherein they speak at length on non quest related issues in text (so people who don't want to read backstory etc can ignore it) and voice act the main dialogue.

-Do you go to the cloud district very often, what am I saying, of course you dont.
-I work for Belethor at the general goods store.
-Do you go to the cloud district very often, what am I saying, of course you dont.
-Do you go to the cloud district very often, what am I saying, of course you dont.
-I work for Belethor at the general goods store.
-I run the fruit stall with my mom. its fun, but hard work.
-I work for Belethor at the general goods store.

I like Morrowinds dialgue system the most, since the people feel more alive.

-Do you go to the cloud district very often, what am I saying, of course you dont.
-I work for Belethor at the general goods store.
-Do you go to the cloud district very often, what am I saying, of course you dont.
-Do you go to the cloud district very often, what am I saying, of course you dont.
-I work for Belethor at the general goods store.
-I run the fruit stall with my mom. its fun, but hard work.
-I work for Belethor at the general goods store.

I prefer the Morrowind/Oblivion method. I have a vivid imagination. The old "topic" system allowed me to make up my own dialog. The dialog I invent myself is better - and always more appropriate to my character - than the dialog I am forced to read or listen to in video games.

Skyrim's system makes me feel like my character is actually having a conversation. In oblivion, my character just said a word and the NPC would magically know exactly what you meant.
I do miss disposition though - I feel like my character has fewer friends in Skyrim.

I do miss disposition though - I feel like my character has fewer friends in Skyrim.

Yes, in Oblivion, the NPCs facial expressions accurately reflected their disposition toward you without them even saying a thing. In Skyrim everyone has ZERO expression. No smiles, no sneers, nothing. Even your "friends" (the people you fistfight who all of a sudden become your servants. Yawn.) don't change their expressions. AND THERE IS NO EXCUSE FOR THIS. NPCs are capable of making different expressions. The animations are all there; there's just no coding/script to tie them to how they feel about the player. I can't imagine how great this game would have been if it were actually complete.