I’m German, but I’m usually sceptical about German localizations, most German voice acting is mediocre and even subs I prefer in English (chances are higher they’re well made).
In any way, I’d play in the language matching the lips. If it happens to be Czech, so be it (subs for me then). This would be great actually.
If English is the way, I’d prefer an easy to understand version without apparent modernisms (i.e. early 20th century), as many posters before me. No fake medieval “ye olde shoppe” crap please. That’s as cliché as crouching for stealth.
Latin for the clergy is a nice touch. Talking about immersion: an actual blacksmith’s son wouldn’t get Latin so it’s a good thing the player doesn’t either. Instead of eavesdropping, he’d have to ask the guys in question directly.
By the way, according to the Internet, most common people in Bohemia at that time spoke Czech, while upperclass folks spoke German (up until ~25 years earlier, Germans were the majority in Bohemia, but numbers declined from there).
To have this reflected in the game, well, I don’t know - a commoner like our hero wouldn’t understand German, would he? Unless you make the language barrier a plot point, I’d rather vote for the setting to take place in an all-Czech (or all-German) area. As opposed to him (us) magically understanding everything.