During dialogue, you can't press f1/f2/f3/f4 to switch to another character, you have to use the mouse to select the portraits instead. This issue did not occur in patch 6, it seems to be a new bug with patch 7. The npc you're talking to also won't face your character when switching, they'll keep looking wherever they were before you initiated dialogue.
I figured it out. you can switch characters but you can't do it with the function keys any longer. When you're in a conversation and it's your turn to respond, you have to click the Character Select button in the lower right corner.
