Mordane76 said:
This one I can attest to doing, but it's not getting the response I want -- people still are responding in a third-person manner.
Don't let them.
Here's how:
You tell them they're riding up to the city gate and that a guard has stepped out to intercept them.
You: "Hold, strangers! What brings you to our fair city?"
(note -- you might want a better dialogue writer)
Player 1: "Okay, we tell him who we are and ride by."
You: "What do you say?"
Player 1: "I say my name."
Player 2: "I say my name, too."
You: "The guard stands before your mount, frowning. He summouns two of his fellows. 'Answer our questions, travellers, or you will not enter. What brings you here?'"
Player 1: "I tell him we're looking for the old wizard."
You: "What old wizard are you looking for, stranger? Do you mean harm to one of our citizens?"
Player 1: "No! We just want to ask him about this cursed sword we found! Sheesh!"
Note that Player 1 is now speaking in character.
You have to force them to do it. Lazy players won't otherwise. Not because they don't want to, but just because they're lazy. Keep asking them "What do you say? What do you say? What do you say?" If they have to tell you exactly what their character says anyone, they're more likely to say it in character.
Keep in mind you should not do this with each and every NPC the players encounter -- but use this technique as a signal as to which people they maybe ought to spend some time talking to.