Ok,

1. Can you hide from non-hostile PC's?

2. Does Invisibility work on non-hostile PC's

Hey there buddy, I am a little bit lost here, I think you're asking a policy question as opposed to a mechanical one, so i'll answer it both ways.

Mechanically -

1) Yes, of course it works 2) Yes, of course it works

Policy wise, should you be setting someone hostile if you're spying on them?

It's a good question. I guess it depends on the location and their relation to your character. I think if you're in the Spellguard Tower spying on agents, you should absolutely set them hostile. If you're in the rock bottom, spying on a random orc just for kicks, then probably not. If you're a gangster, spying on a watch sergeant anywhere in town, you should probably set them hostile.

So the answer to both questions is then, policy wise

1) Depending on the circumstances 2) Depending on the circumstances

Use common sense, I guess.

Cheers, - Nuke

Thanks, The policy question got it exactly. Sorry for confusing you. Ill just, when spying, always air on the side of safety and set them to hostile.

Yes, please do.

Basically you should set someone to hostile when performing any act which you reasonably suspect would result in violence. If someone was caught spying, there is a high chance of violence, so hostiling it the best way to go.

However (and this has happened to me in the past), if they suddenly start buffing up when you set them hostile, they're basically metagaming the fact that you've set them hostile too, so watch out for that ;)