Actually, shouldn't it be difficult to distinguish conversations when a lot of people are speaking at once? More distant voices tend to get drowned out by nearer ones.
Exactly, thats why we should be able to "hear" the nearer ones better by different font color and as was mentioned, I want to be able to focus on the conversation near me, not follow a conversation on the other side of a noisy tavern. Also, as mentioned before, this coloring can easily be made alongside the whisper mechanic that is also needed.
While I like the idea of text not being able to move through walls easily, that would probably be really difficult to do, especially with how sound would move around corners and through doorways.