Sfon: I'd rather they tone down the amount of loot all over town, so "can pick it up" remains the same as "ok to pick it up" but there just isn't so much taking orens from 5 places in someone's house. It is just tedious to go around looting everything anyway, especially in the first game.
It is currently awkwardly squished between two loot systems:
JRPG, where it is ok to have sticky fingers but it won't let you grab much.
Sandbox, where you can pick up their silverware but it will piss people off.
I'd rather they just go with the former when it comes to towns. It works better for somewhat predefined characters and linear gameplay. The Witcher games are
not sandbox.
If it does go more in the direction of the latter, I'd rather it be a binary than reputation system. Seen stealing = everyone upset. Also you can clearly see if something counts as stealing or not (red hand, thief symbol, whatever).
But what if that happens? Even in a reputation system, what if it hits bottom? Quests are ruined or you must abandon the town, would anyone really accept either of those without just reloading? Guards burst in, you kill them and exit the house, and then they are fine with you because the game can't deal with you slaughtering the town? It doesn't fit into the non-sandbox style of The Witcher at all. I can only envision it being something stupid and even more immersion breaking than it currently is. Better blind AI than stupid silly AI which really drives the gameness of it home.
Like someone else suggested, they should just don't put any loot in peasants' houses. It fit well when you infiltrate Loredo's warehouse and then, stealing is justified. But outside a quest that requires you to steal something, they shouldn't put any loot in the peasants houses.
There is enough forests, traders and beasts to get your ingredients from, so i think not puting loot in normal houses is the best way to mantain the Lore of Geralt's character and the game to not feel weird.