I think the OP meant something like this
DM:NPC: Why yes! I do know the shortest way to the West Hill, I take it in order to trade my bread.
PC: How do you make your bread?
DM: He explains his process of baking his bread in detailed fashion.
It is then hard for the PC to keep the conversation going in the manner it started in.
Yes, exactly. As a DM I really hate 'show stopper' questions when the player asks you something which ought to be obvious to the NPC, but which you as a DM have never considered and have no idea how to respond. Even expected questions like, 'What is your name?' that you'd think you'd always be ready for can cause momentary panic.
Dealing with 'show stoppers' is hard, and really I know of no special techniques for getting around them all except good preparation, broad study of trivia relevant to your setting, and practice.
In the above case, it took me probably 20-30 seconds flailing around in my head how to respond to the question when I realized the best responce was to dodge it with something like, "Ahhh now that would be an old family secret, and it doesn't do my purse much good to be giving away my secrets.", properly acted to suit the personality. That answer is believable, evocative, and builds the character, but whether I could come up with it under pressure much less smoothly get it out now past the rust I don't know.
Like yourself, it sometimes occurs that I lose interest in doing the voices and return to the typical third person format. This interest is immediately rekindled when I realize that the interest of the players has gone from 100 to 0.
Bingo. I believe that its pretty close to objective fact that the first person emmersive techniques are more skillful and objective than using third person or worse metagame language narration. DM's that say things like, "The orc steps two squares closer to the Paladin and makes a basic attack" drive me nuts, and to be honest I can barely maintain interest as a player in their games. Know the freakin' names of your PC's for crying out loud, and try to pretend that its a freakin' raging orc try to hack you apart with a battle axe, not some 1" high game peice moving across a tiny little board.
I really hate minatures. They have there place, but do they ever distract from the game.
You see yourself that it is important to your players' interest that you talk directly to them using NPCs. For awhile, I found some conversations lasting up to 20 minutes where only 5 minutes of it was actually useful to the party goals. I'm sure your players don't want to a majority of the night talking about the weather (unless of course, the weather is a major plot point). If the players are asking questions that you don't find much use in answering, answer it to the best of your ability, but then try to steer the conversation back in the direction you wanted it to go. Find a compromise between what you envisioned and what the players want.
This is one of my biggest problems as a DM and the one I want to strive hardest to fix if I ever get back to reffing a game. I sometimes forget the forest for the trees as I get so involved in trying to make each particular interaction believable, that I lose track of the why of it. I have this problem in my fiction writing as well, as I want to spend to much time on backstory before jumping into the action.
Oh yeah, no hats at my table.
I find props silly. Until the prop can actually match the imagination, it tends to be more of a distraction that break game emmersion rather than something that helps it.