Did the burning ship quest from the beach outside the gate. Waited until the three townies were involved, and everybody stopped bailing when the rain started.
Once I'm in town, the three stranded sailors, Pablo, and the three townsmen just inside the gate are all replaced by red silhouettes whenever they're in full visibility. As they start to fade out into the distance, they return to normal display.
Conversation does not change this.
Marv and the sailor he's talking to, and everyone else deeper in town appear normal.
