My initial thoughts on mental state was that it indicated who were the aggressive players and who weren't. This is helpful if someone is approaching and gives a clue whether or not they intend to attack.
So what is the point of mental state increasing when you kill an npc...I couldn't care less that a player killed an npc, I want to know if they are an arse towards other players.
Yet again, along with passive mode, a good idea poorly implemented.
EDIT: If you're unhappy with this change please email your feedback to Rockstar at firstname.lastname@example.org