Do we need a quantum deformation of the diffeomorphism group in string theory? Let me justify my question before I go on. In string theory, gravitons are strings extended over space. Longitudinal gravitons are pure gauge modes of the diffeomorphism group. However, in string theory, longitudinal gravitons are also extended objects. A condensate of longitudinal gravitons is equivalent to a diffeomorphism, but this diffeomorphism has to be smeared out over the string scale. Is the diffeomorphism group in string theory a quantum deformation smeared out over space?
In the weak field small string coupling limit, the string theory algebra and the classical diffeomorphism algebra ought to coincide, but in this limit, all such algebras over a Poincare invariant background are isomorphic. Away from this limit, what is the form of this quantum deformation?
 A: nope, there is no deformation of the gauge symmetries in string theory; there is just an infinite extension because aside from the usual massless gauge symmetries we know from quantum field theory, are are - at least in some formulations such as string field theory - a whole infinite tower of additional gauge symmetries that combine into a stringy gauge symmetry (with a whole string field being the parameter of the gauge transformation). The string field theory only works properly for the open strings which can't gravitate but the discussion is analogous for closed strings as well.
However, the massless gauge symmetries form a subgroup of the stringy gauge symmetry algebra and it is completely undeformed. The internal structure of a string is extended in space but it's still true that the unphysical model of the particle that emerges out of the strings knows about a particular point in spacetime - essentially the center-of-mass of the string - so the spatial extension of the string doesn't make the theory nonlocal in this simple sense.
There's a sense in which much of the nonlocality that you would expect from the extended character of the strings is spurious. For example, perturbative string theory's amplitudes still obey (but saturate) the inequalities one may derive for local quantum field theories. Also, you may imagine that the pieces of the string that are "very far from its center of mass" are associated with high-frequency vibrations of the string, so all their physical effects get rapidly averaged out over the time.
However, for many calculations, this is not just approximate: some "derived fields" and "derived gauge symmetries" from string theory behave exactly locally. So string theory, although it may superficially look like a theory of "generic nonlocal objects", is actually much closer to a strictly local quantum field theory than how it looks like.
