Encountered and tested in The Rosy Lion in Daggerfall, NA PC

When you enter the inn with other players, even players you are grouped with, many of them will disappear when you go towards the bar area. They will reappear if you go upstairs however. At first I thought this might be a phasing issue based on one character having unlocked the free room whereas the other character had not. However, I later grouped with a different player who HAD unlocked the room and entered the inn. The same thing happened. An RP event there later encountered the same problem among several different players who commented on it so I know it wasn't just me.