There was a glitch with the dragon ceremonial cape that made the person wearing it invisible to others around him. This normally resolved itself after 10-15 minutes and the player would become visible.
However, the glitch you're referring to happens frequently when I play. People find other people invisible, their text does not show floating anywhere on the screen, only in the chat box, and they remain that way throughout gameplay.
It's most evident when you multi-log and your alt or main are invisible to the other account. This is just a glitch - remulti-ing/relogging should fix it.
