Perma Grey: Has previously stolen from an innocent (blue) and is freely attackable by all. Perma greys are tough to spot as their name appears blue unless you attack them, upon which point they remain grey to you until they die. A player must be in the NPC thieves guild to qualify as a perma grey. Be warned, attacking a non perma grey thief will be considered a criminal action. The most confusing colour flagging system.

Nice points corpse. I haven't messed with the bounty system here so I've yet to find any flaws.

I agree with your statement, how is a man whom has a bounty on his head able to stand near a guard.
Well just as in irl, If a man is wanted he can go shopping nearly anywhere without turning any heads. Some people go years before getting caught. So guards attacking players who have a bounty is a no in my opinion. BUT, I do think that a player with a bounty should be perma grey to everyone, able to be attacked and the attacker remain blue.

Now people farming their own bounties, that's gonna be a little more of a pain to solve. For starters make bounties (if it isn't this way already) set that if once murdered you choose whether to place a bounty on the PK but the money comes out of your bank. If you have no gold, thus a shame poor peasant.