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Pretty straight forward -- Let's say I try to make a ranged attack against a target 15 feet away, but directly in the path is an ally. Where the fighting in melee would dole out a -4 attack penalty, would this be irrelevant as I cannot get a line of effect on the target, effectively giving him total cover?
No. Creatures do not block line of effect.
Total Cover: If you don't have line of effect to your target (that is, you cannot draw any line from your square to your target's square without crossing a solid barrier), he is considered to have total cover from you. You can't make an attack against a target that has total cover.
A gelatinous cube in a 5 by 5 coridoor might be an exception to that.
Or say, a halfling on the far side of a ginormous red dragon that was lying down.