Now, other games often get around this by giving each character and NPC its own space, mutually exclusive from the space around it. In other words, you can bump into things, but not stand in them, enveloping them. While such a method may be more true to life, I think WoW's way of doing things is quite handy, considering the sheer numbers of players in big cities or on heavily populated realms.
Unfortunately, it can indeed become a bit of a nuisance. I become especially frustrated in the banks, when some characters feel the need to stand in the banker, rather than in the crowd, or when I find it difficult to click target a quest-giver.