What is an entity by your definition?
PC or NPC - basically anything living with any degree of intelligence. Actually you could just call the class Character and you'd be more correct, whether it's a player or non-player character.
I would do the hierarchy something like this.
Entity (Base class for interactive elements, does collision detection, etc.)
-Character (Same for PC and NPC)
Character and Vehicle should have a shared parent object (Pawn), so that Controllers can be freely and easily switched between the two.
Entity has odd meanings, Machaira takes it to mean what I mean by Pawn, Struan takes it to mean what I mean by Actor.
Actor == gameworld object. Actor tells me something that acts on the gameworld.
I think it's the inanimate objects as actors that gets to me.
Inanimate objects still act in that they collide and can be seen.