This is an important idea, one that gives the players a sense that they are truly part of the game world. Obviously, not every action will have an important reaction, but certain ones will. I think this would work best in an open, sandbox style of play, but I wouldn't rule it out of other types of campaigns.
Ideally, we'd be talking about a large group of characters (or corporations/guilds) for the players to interact with. Think a space station, castle, arcology, etc. I've toyed with faction systems before, and I think it can help keep track of how different NPCs react to the players. If you assign different faction hits or bumps to possible player choices (ex: Player intercepts black market shipment, -5 faction from Black Marketeers, +5 faction to City Watch) and just make a campaign tracking sheet, you can remember that the City Watch likes Bob's fighter, tolerates Jill's Mage, and is distrustful of Tim's thief. This would make playing NPCs more interesting, and even help give them a bit more personality.
Another thing to do with your campaign tracking sheet would be to have pivotal moments which will steer the campaign along one or more possible tracks. Depending on which path the players take, and how they accomplish their deeds, the campaign changes, and how the player characters are perceived is affected as well. For example, you could have two main paths: (1)Support the current king or (2)Support the claims of a rival house. Each one of those paths could have events (holiday feast, masquerade ball, tournament, Captain of the Watch letting assassins in through a hidden passage, the King's bodyguard is poisoned) which branch off like a flow chart, and when the players choose one route, it closes off other options and affects the campaign.
At its best, the competing factions are good(ish) people, with valid points on both sides. This makes a little internal party discussion (in character, of course) a fun thing, and choosing a side isn't as clear cut. Our Marvel Civil War episode drops tomorrow, and we hit on that a bit.