What role does speech play in creating setting? How far is too far when it comes to trying to capture the flavor of "ethnic" speech? How do authors strike a balance between maintaining an illusion of everyday speech on the one hand and creating memorable dialogue on the other? What happens when authors give up the effort at maintaining a balance? Who are your favorite writers of dialogue, and why?
For me, authentic speech is one more thing that pulls me in and keeps me reading a story. I can't say the actual dialogue is essential as I think one can approach the same level of authenticity with sentences like, "Animatedly, in Italian, he gave me directions to the church." However, when a writer known for a good ear doesn't try as hard to deliver the nuances of speech, I can tell.
I think dialogue is one of the best ways to move a story and one of the most natural ways to reveal character. I think it's going too far when the dialogue as written looks too different from readers' concept of normal. A writer's goal is often to make readers comfortable with local speech. The more that speech resembles what the reader is familiar with (i.e. standard English), the easier the job is. I need just a few sprinkles to get the feel of a different speech pattern. For example:
The first thing he said to me was, "What you want?" It sounded more like, "Chew on."
After this bit of explanation, I have enough of an idea how the character sounds to take me through the rest of the story.