I am not an expert, but I think their visa would have expired, so they would have to start the whole process again and probably have to leave Thailand to get a new visa or visa exempt stamp. I think it's true they would not receive a fine, but everything else makes it a very bad idea.
non O is not a tourist visa. It is an immigrant visa. The 'O' stands for 'other', so it used for a few purposes, but it covers things like retirement and marriage. It is the best choice for you. Most people retiring to Thailand use this visa type.
to apply for the non O inside Thailand you need 800,000 in a Thai bank and it's virtually impossible to open an account on a tourist visa. The method you are suggesting used to be possible, but the banks have cracked down on this now, so it's virtually impossible. Much easier to get the non O before coming to Thailand.