I recently finished reading John Berendt's Midnight in the Garden of Good and Evil. I loved it and hated it at the same time.
Like me, Berendt is a creative nonfiction writer: he embraces certain fiction techniques, such as plot, dialogue, characterization, and point of view, to make the story more compelling. But there's a line, and in my opinion Berendt crossed it. To make the real-life scenes flow more smoothly, he invented transitions, a process he called "rounding the corners." It was meant to make the book more enjoyable to read, and I'll admit that he achieved the desired effect. But what he also did was make me distrust the entire work.
It's not necessarily an ethical violation to veer away from the literal truth for the sake of a more lively narrative. I've done it myself. If an interview subject says to me, "I saw Bugs Moran in the lobby of the Parkway Hotel and said hello to him", I might translate this statement as "Seeing Moran in the Parkway Hotel's lobby, John Doe said, "Hello, George."" This is more engaging prose than "John Doe said hello to Bugs Moran in the lobby of the Parkway Hotel." But what's not permissible, in my opinion, is to write something like "Seeing Moran in the Parkway Hotel's lobby, John Doe said, "Hello, George." Moran returned the greeting, then stepped out into the sunny August afternoon. The recent killing of his old friend Bill was on his mind, and he was in no mood to talk." It's an even better literary treatment of the encounter than my own version, but unless Moran explicitly told John Doe that he was still upset about his friend's murder and not inclined to talk, an elaboration like that is unacceptable.
It's my opinion that if you have adequate research skills and know how to ask the right questions during interviews, you can come up with enough compelling material without abusing creative license. Do not cheapen your work by inventing dialogue, characters, and incidents for the sake of appealing to the beach novel crowd. Truth can be much more engaging than fiction, and if you have any real talent as a writer, you can apply that principle successfully.