I didn't mind being written up as 'the pretty girl across the road who has a different boyfriend in a sports car taking her out every evening' - I just wished it were true. I minded a bit more when I went out a couple of times with the boy next door but two, whose parents had put in a planning application that my parents had objected to. We were written up for the benefit of the nation as the Romeo and Juliet of Putney, immediately withering any romance that may have blossomed.
So you'll understand why I'm very careful when I 'borrow' from real people. Which I do - I think every writer does. What I borrow is always something small - a gesture, perhaps, or a snatch of remember conversation - and it's always for minor characters. I couldn't lift a real person, any more than I lift stories from real life. It was mortifying when people asked if Neil in Adultery for Beginners was based on my brother-in-law. They both had moustaches and similar jobs (hence the questions) but in my head Neil looked and was so different it never occurred to me others might see similarities.
I hope I'm sensitive to other's embarrassment, and if using real life people did work in writing fiction, then I still wouldn't use them. But there's actually no moral dilemma here. The fact is, real life doesn't work as fiction, and nor do real people. Reality is inhibiting, stultifying; you have to make it up to make it convincing.