You might want to re-read what I wrote. I said it was faction based not that there was no general reputation system like Gothic 3 (although the G3 system is still just as broken - you can liberate nearly all the orc cities and still not be KOS to orcs).
I have since verified this via marvin. Turn yourself into a dragon hunter in chapter 1 and the mercs will do exactly the same thing they do when you become one later on.
