Letterbox mode disables some user controls (it doesn't pause the game though). I usually use DisplayTextToPlayer(). It is easiest IMO and looks the cleanest. Floating text often is difficult to read depending on the background terrain.
See TKoK for the thing I'm talking about. If you want transmissions, I believe Gaia's retaliation uses them, so you may want to check it out and see how you respond to it.
In a campaign I was working on, I had an "interact" ability which would show some text. Text would be displayed in "pages" (I would only show a certain amount of text at a time). When the npc has more than one page, interacting with him would switch the ability to a "Next Page" button. Overall, it acted a lot like the zelda speech system. If you haven't played the Zelda games, you would approach someone and press A to speak. Then they would print text on your screen in a little window, and you can press buttons to go to their next set of text or w/e.
