I also agree with most of what you have to say, except for:
airwalkrr said:
If the PCs make the NPC an offer he cannot refuse, why would he? Just because the PC failed a Diplomacy check? Why even ask for a Diplomacy check in that case?
A player may believe that an offer cannot be refused, but this does not mean that this belief is true.
airwalkrr said:
NPCs are not static creatures that respond only when a Diplomacy check is rolled against them. They should react rationally (assuming they are sane) at all times given the circumstances. [...] A good Diplomacy check should not be required to get NPCs to act rationally.
A player may believe that the response they want from an NPC to an offer he/she makes is the only rational one, and therefore that the NPC should accept the offer as a rational act, but this does not mean that this belief is true.
airwalkrr said:
Would you buy a brand new ferrari for a mere $5,000? Who could pass it up?
I would be extremely cautious.
If someone wanted a bauble from me that I thought had only a low worth, and that someone was willing to do something big for it, I would spend my time wondering what that bauble really was.
As the hypothetical King in this situation, I might say yes, but I would include a stipulation that if my court wizard found out (while the characters were out slaying) that the bauble was something worth more than X (some value relevant to the situation), then Y substitute would instead be the maximum payment.
If an offer sounds too good to be true, it probably is.
--------------------------------------
NPCs do not always act in exact the way a PC expects, and die rolls add the element of uncertainty into the situation. One where a purely arbitrary DM decision does not make the final determination. Although it is only my personal belief, if I don't have some type of control of the situation (my chance at success via a die roll), then I really might as well not have a character sheet or dice. It's back to the pre-RPG days of "I shot you first! Nuh-uh, I shot you first!" (Or, worse, just getting dragged along by main force through whatever tale the DM happens to be telling.)