For example, your party could sneak up on a sleeping collection of thieves. The party is all in position and alert. The party spokesman speaks, waking the thieves. They talk for 10 seconds, then somebody does something stupid. Initiative is rolled, and it turns out all the thieves go before any of the PC's. Even though the PC's are just sitting them, arrows notched, waiting for something.
You see?
That doesn't inspire a lot of talking.
It would be nice if the party in this case had "auto initiative", something like a presumed "20" on their initiative roll when things get ugly.
This is the opposite problem of thinking that whoever acts first gets a surprise round.
First, you can essentially 'take 20' on initiative provided you get a round to prepare. Unfortunately, this is a problem because the thieves can after a round do the same thing, which would favor the thieves I admit.
But, thieves lying on the ground need a move equivalent action to standup, and another move equivalent action to draw or pickup a weapon. So unless you are dealing with high level thieves with quickdraw and amazing tumble skills, the players would still get a full round of attacks on the thieves before they could do anything - and a full two rounds if the players win initiative.
Second, even if the thieves win initiative (as I pointed out above) they won't catch the party flat footed.
Thirdly, why doesn't someone in the party have the initimidate skill and intimidate these thieves into timidity? I would suggest that this is an example of something that would give a pretty high circumstance bonus to your initimidate checks.
Fourthly, if a player expressed a concern to me that this wasn't enough and/or the player seemed particularly careful to watch for any sign of hostile intent, I'd allow the players to make a sense motive check vs. the thieves bluff skill
to detect the attempt of a thief he was covering to ready his combat action and give that player oppurtunity to respond using his readied action 'take 20' initiative before the thief can 'take 20' himself, thereby forcing the thief to beat the players initiative bonus + 20 - which would be hard for almost anyone improved initiative or not. For the record, I thought that the rules on this where alot clearer back in 3.0 when the Refocus action was specifically spelled out rather than made an aspect of the Ready action as in 3.5.
Fifthly, how did the thieves signal to each other that this was the time to go. Surely if they hadn't passed some gestures covertly to each other, one thief jumping up and attacking would catch the other thieves as much by surprise as it would the party.
And sixthly, whatever you think is a fair way to handle this, understand that the same is true for the party of thieves catching the player's unaware and sleeping. If the player's want some advantage, remind them that that same advantage can be used against them.
Lastly, and somewhat off topic, I don't think that D&D's initiative system is really all that unrealistic for having such a large random factor. Real life, things happen really quickly, and even people with agile reflexes can be caught blinking. Think of the times that NFL players catch each other off completely gaurd even after dozens of times facing each other in the same game and even though all of them are well honed atheletes and aware that the action is about to begin. Keep all this in mind the next time you are watching real combat footage.