The behaviour is slightly different than it was for v1.2.3 ("Veteran Crypt of Hearts"), it does not colour for all friendly players and NPCs; only hostile "mobs", friends (on your friends list), guild and group mates. This makes it consistent with the original version, and (I think) less distracting.
If you want the reticle to be colored for all players and NPCs, then you should un-install this one (sorry), and install Garkin's latest version of [url=http://www.esoui.com/downloads/info600-RainbowReticleforUpdate3.html Rainbow Reticle (Update 3)]. It should behave the same as it did before.
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