First of all, let me say that I am a huge fan of Dark Avatar. It represents a major leap forward in an already fascinating and complex game, and it does so (in large part) by deepening the strategy involved in gameplay.
Along those lines, I feel as though Diplomacy should be given some more depth. As it now stands, Diplomacy in DA is more or less a barter system: I offer X to Race 2 in exchange for Y. If Race 2 doesn't think the trade is sufficient, I offer X+Z in exchange for Y. And so forth. Alternatively, I can offer X to Race 2 for nothing in return -- essentially giving a gift or a bribe in order to raise my approval rating.
The problem is that there are no negative consequences associated with "bad" or insulting offers. You can make 20 terrible offers to Race 2 before finally settling in on something more appropriate, but there is no penalty for having made those previous 20 offers. Any real-life negotiation would have broken down well before Offer 20 was placed on the table, and the offended party would have left the room furious (and thus, less eager to negotiate with the offender next time around).
Diplomacy should be enhanced to reflect such realism. If you make a wildly insulting offer to another race, you should risk losing favor with that race. Think of it as the alternative end of the spectrum to bribery. Bribe a race to gain favor; make insulting demands and risk losing favor in equal but opposite measure.
To color things even further, perhaps the races could take into account their relative power standing vis-a-vis your own. If, for instance, Race 2 is much less powerful than mine, they may (or may not) decide to be more compliant with my demands for fear of insulting me. Essentially, the more powerful race could "bully" lesser races in this fashion -- a realistic diplomatic tactic. In order to balance out the benefit of bullying, perhaps other races could start to lose respect for you as a result of your bullying one race.
Insulting a race too heavily in negotiations could run any number of risks: from simply having the other race close out the trade window, to losing some favor with the other race, to forcing the other race to declare war (if your offer is extremely insulting or threatening).
I'm not sure how difficult it may be to code such things into the trade/negotiations code. But to the extent you are able, I think such changes could benefit an already superb game.
