I clicked on don't havok settle on both the npc and rope. Worked fine except the rope, with NPC attached moved around like a balloon in high wind and still attached to the gallows. So I used a collision cube and that seemed to fix it. Now I just get a gentle sway, which is what I was looking for.
I just did this, but my npc seems to be swaying in the wind, I mean swinging wildly. It's funny to watch but it there a way to keep it to a slight sway? I clicked "Don't havok settle," before, the person was just crumpled on the ground.