So it's possible to lose some reputation in HoW expansion when interacting with some NPC dialogues. Does this have any effect on the game? I know reputation was important in BG1, but I don't see that it makes any difference in IWD/HoW.

The only effect (that I know of) is that Rangers and Paladins can 'fall' from bad reputation. Otherwise it has little (or no) effect.

I never about reputation loss because of dialogues. But if you loose reputation because of killing innocents shops will get more expensive.

The only way to lose reputation in IWD is if you attack innocents. Even if you pick the assholey responses in dialogue, all that will happen is the NPC might say something different but the end result is always the same. Reputation in Baldur's Gate was probably the stupidest mechanic I've seen in a game and thankfully, it is all but ignored in IWD. As long as you don't kill random innocents, your reputation will be stuck at 10 through the whole game.

IWD wasn't geared to reputation, even if it uses a modified BG1 engine. Pity since there are a few places you can lose rep but none to build it up. You can cheat using Near Infinity and boost it to 20 if you want (helps with store prices but has little effect otherwise). The IWD-in-BG2 conversion allows you to donate at temples to boost your reputation, and maybe later will add rep adding or subtracting to certain quests...