That said, using that when you should use who, bothers me. And the book I'm editing now does that a lot. I mean, almost all the time.
So, here's the rule.
If you are speaking of a person or group of people - use who.
If you are speaking of a thing or animal - use that.
Unless...you are specifically treating a person with disdain, as a non-human, then you can use that. For example, "Max is the jerk that married Jim's daughter." Just be deliberate about it.
What is your grammar peeve? Share and be entered to win stuff. See contest post for more details.
Here's a picture of Watson out in the snow. He really liked it and didn't want to come in.