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One of the best people-watching places in Taos is the front patio at The Adobe Bar located on the main drag at The Historic Taos Inn. Awesome music, great margaritas and every kind of person you could ever wish to see. It is always entertaining and a blast!
However sometimes it is nice to just sit in the shade on one of the benches on the Plaza and watch the world go by. After all, Taos is more a frame of mind than a place where you try to see how much activity that you can pack in to one day. So, take off your watch, shut off the cell phone, and chill. Kick back with an ice cream cone or fresh caramel apple from the Rocky Mountain Chocolate Factory or a soda from the soda jerk at the Taos General Store. After you have relaxed on the Plaza for a while, you can then stroll up to the John Dunn shops. Ample outdoor seating and plenty of places for a refreshing beverage also makes this a prime people-watching spot.
For star watching, or to just see a great mix of locals, Cids Food Market cannot be beaten. Cids is the locally owned and operated organic food store. Anyone who is anybody in Taos shops there, and the reason is high quality produce, reasonable prices, and outstanding service.