ToME: the Tales of Maj'Eyal

Currently its way to simple and safe to kill rares (well ... actually nearly everyone) in cities ... just swap them into water and wait around till they die of drowning ...

Could it be set up so the NPC's notice that they're losing air and looks for a place where they can get out of the water?

They already do now. Because of the new drowning method, it's much more difficult to keep them in the water, they run when there air runs out. Other then derth, there aren't many places with deep enough water they can't get out, unless you can find some way to block there path. Other then that, I'm not sure what changes can be made. More complicated AI would no doubt be applied to all creatures, would could create lag in dungeons, depending on complexity. (Already does on vault levels)