if we kill them do we get to claim the clothes and weapons please?
Once they have weapons in the future, they will be lootable from their dead bodies
Can't say much about the clothes yet, but I guess we will add this feature as well
1) A GUI (PNB style) to allow us to cycle through making an NPC by selecting their gender, clothing types, and etc. Both a Creative mode & survival form would be handy where in survival you could just swap out their inventory. (May be more of a plugin thing).
Oh yes, a GUI would be really helpful. I'll put that on our list 
2) Have Dummy NPCs seek out a bed, or assign a bed for them to seek. They're sleeping on the floor like hobos.
2.5) Would be neat if you could make them sit on a nearby chair, or assign furniture for them to interact with. I'm aware they're dummy npcs while seeking a more "immersive" way to go about this. Sorry.
I also put that on our list. Assigning a task like "sit on the nearest chair" or "sleep in the nearest bed" should be possible. I'm curious how even some more complex stuff like "play the nearest piano" will turn out 
3) One of my test Knights drowned himself at my port to then get stuck in a repetitive death cycle of painfully falling to his death....
Apparently there is still an issue with the death animation... they're based on the regular player model, and they also get stuck in a broken death pose sometimes. We still have to find out what's causing this 
4) NPCs need a 'patrol' route that they should follow. I'll use the lock command, yet they need to be able to also follow a "patrol" route you can set (even at random).
Can't say much about that yet. I mean, at least once the adventure mode is in place, we definitely need something like that.
4.1) A follow command would be handy so you can set them up where you want them.
On our list 
Can we even have decorative knight armour and cape?
At least a decorative knights armor (which can be placed in the world) is planned.
Wish we could customize our knight armour using dyes....
Well, coloring clothes (or armor) is planned anyway, but somehow this was pushed back now due to the other stuff that's in the pipeline
Let's see when we get some time to focus on that^^
Now curious if NPCs can hold onto items, or if that needs to be enabled in their hand. If they can hold onto weapons that be awesome
We made some preparations for that (since all future NPCs will be based on the dummy). So yes, with one of the next updates, this option certainly becomes available 