Guy Gavriel Kay has just written in the Guardian about the issue of conscripting real people into a fictional role. He follows up A.S. Byatt's essay, which I recently discussed, and also points to another essay by Anthony Beevor, more about the willy-nilly appropriation of historical fact to create 'faction'.
Kay calls the habit of writing from the interior world of another person an "ethical dilemma which has seeped – like a toxic substance, unnoticed – into fiction, even at the highest levels". He acknowledges the fact that many of these books are well written, enjoyable, and highly regarded. But the problem seems to him to be one of privacy; a person, even if dead, has a right to their own existence, their own interior life, which shouldn't be co-opted for another person's novel. I agree, very strongly, as you may have figured out from my last comment on this topic. He goes further in the comments to his piece to explain that the use of real people should be limited to those forming the backdrop to the novel, and the narrative voice be the writer's own creation. He himself gets around this problem by writing fantasy, in which his characters and settings may be inspired by real life people or events but are clearly not purporting to be the truth of those people's lives.
As he says, when writing about someone real who has already died you may be able to avoid libel laws, but does that make it ethical? There were some great comments to my last post, bringing up different aspects of this discussion, and it was very interesting seeing another essay in the Guardian. I can see it is a widely contested issue!