I'm going to quote the Dungeon Master's Guide here on the Dungeon Master:
You [the DM are] a member of a select group. Truly, not everyone has the creativity and the dedication to be a DM. Dungeon Mastering (DMing) can be challenging, but it's not a chore. You’re the lucky one out of your entire circle of friends who play the game. The real fun is in your hands. As you flip through the Monster Manual or look at published adventures on a store shelf, you get to decide what the player characters (PCs) take on next. You get to build a whole world, as well as design and play all its nonplayer characters (NPCs).
It's good to be the DM. (4)
What your DM has decided is that while it's good to be the DM, it's not good enough. Wanting even more control over the behavior of NPCs, he's unilaterally for some characters disposed of the NPC/PC divide and created a third category that lets him run these select characters the way he wants to run them, contrary to the rules.
He can do that. You can't stop him. He's the DM. You have three choices:
- Accept the DM's position. Continue playing using the DM's house rules.
- Leave the game. If the DM's position is intolerable, find another game.
- Keep fighting the DM's position.
Let's take the first two off the table. If 1 were an option, you wouldn't've posed the question. If 2 were an option, I hope you would've already left. So let's tackle 3.
What you've tried so far is to convince your DM that this is a bad practice by showing him evidence from the texts that he's breaking the rules. This is a fine logical argument, and were the DM able to be convinced by logic on this point, he would've already abandoned his position. He hasn't, so a logical argument—no matter how sound—probably just won't work. I recommend, instead, you make an emotional appeal.
That is, this whole issue sounds like an emotional issue for the DM, and arguing logically against emotion rarely works out well for either side (although it can be fun to watch). I mean, the characters the DM's slaved over can't be merely NPCs—they have histories, full character sheets, and everything else, and to call them NPCs insults not just the character but the DM himself! Trying to fight with cold logic and evidence that deep-seated emotional connection that the DM has to his characters just won't work. No amount of evidence you can marshal will change the DM's mind about this point, and every time you show more evidence of him being wrong, the deeper he'll dig in because the more you've insulted him and his campaign.
Instead,—and there's some risk involved here—allow yourself to get emotional, too. For example, when the DM refuses to have—let's call them what they are because trying to call them what this DM thinks they are is too complicated—an NPC swayed by your PC's Diplomacy skill check, part of your player agency has been removed, your character can't do what you built your character to do, and how are you supposed to know when the DM's counting a creature as an NPC or a PC? Do they wear signs? Are you supposed to waste everybody's time guessing if your skills will work?
And so on. (Needless to say, were I in such a campaign, working my way to an emotional response wouldn't be that difficult.)
Let me be clear that I'm not suggesting flipping the table, throwing a fit, or even sulking, but explaining—in emotional terms—how the inability of your character to function like you imagine your character should function makes you feel. It's ruining your enjoyment of the campaign. Your appeal may go something like this:
I think it's awesome that you're so invested in your characters, but I'm invested in my character, too, and him not being able to what the rules say he should be able to do makes me feel uncomfortable. I'm frustrated that I don't know what my character can and can't do anymore. I'm sad that he isn't living up to my expectations. Is there any way we could discuss this as a group?
Then actually discuss it! Figure out—for reals!—why this is a concern for you. If you must, contextualize it: we're talking a role-playing game about fighting imaginary monsters, yet you've felt strongly enough about this issue to consult experts in the field on how to deal with this DM's position. Why? Put words to those emotions, and see what happens. (It's fine that you did this, by the way.) If, afterward, the DM's position still isn't mitigated at least somewhat, then you're back to either 1 or 2.
Your PC is not an NPC
This is in a separate section because, personally, I would be tempted to leave a game over it were it sprung on me. The skill Diplomacy says, "You can change the attitudes of others (nonplayer characters) with a successful Diplomacy check…" (PH 72). Thus, rather than using the skill Diplomacy, NPCs must sway PCs either with special abilities or by making a good case with which the PCs agrees.
The DM can already do a lot, but making a house rule saying an NPC's skill roll is sufficient to make my PC like an NPC, love an NPC, or lend money to an NPC seems to me like watching a video game cut scene instead of playing the game. I'd really want a substantial rules change like this proposed—and justified—at the campaign's outset.
(For example, in a campaign centered on tragic romantic entanglements I can imagine such a house rule—in that case, the DM needs or wants PCs to fall in love with folks PCs' know they'd be better off avoiding!—, but even then I'd expect the technique to be used only sparingly. Let the NPCs have their own tragedies with each other. My PC'll pick with whom he'll get tragically involved, thankyouverymuch.)
A rules change allowing NPCs to influence PC behavior with skill checks in this fashion lets the DM's characters—that can have Diplomacy skill check bonuses however high the DM wants—essentially dictate the behavior and feelings of the PCs. Springing this change on players mid-campaign would either require me to trust that DM implicity or see me urge the DM to quit DMing and go work on his novel.