I did some research on this by looking at the output there in classic. It is indeed ruler name. Specifically, ruler name of the region you are in.
Regarding the use of the macro in the talk window as reported by OP: this is a negative response from nobles in general, not just King Gothryd. Therefore, it will look odd for this particular NPC because Gothryd is saying he's friends with himself.
I was not able to trigger this response in classic because there seem to be two kinds of negative responses: initial and follow-up. Follow-up responses don't show up in classic, you get one response and then endless "I don't know" stuff. I'm guessing it's a bug or something DFU corrected?
Anyway, the mage quest window was the only place I could see it in classic. Here are some results I got per region [%rt] [%rn]:
Note that according to UESP, smaller regions don't have named rulers, so I have no idea where the macro is grabbing these names. I do know that the name never changes, though. I went to other cities and the same name came up.
Also note that for large regions, the title is included in the name string for those NPCs, which results in title repetition here.
For each reagion, the ruler is taken from FACTION.TXT data in two ways.
FIrst, DF will look for the first "individual" child faction of a region faction and if found, it will use it as the ruler. Therefore, only the following regions have a unique ruler:
Anticlere: Lady Doryanna Flyte
Daggerfall: King Gothryd
Isle of Balfiera: Medora
Lainlyn: Baron Shrike
Orsinium: Gortwog
Sentinel: Queen Akorithi
Wayrest: King Eadwyre
All other rulers bear random names and use a fixed title taken from the ruler field of a region faction data found in FACTION.TXT.
The difference with classic comes from reputation. There was also an issue in DFU making NPCs react much more negatively to player queries, Interkarma fixed it in a recent PR.