When I write dialogue, I like it to be reflective, as near as I can make it, of my character's emotions. This way, I can present a true picture of the way he feels. How he responds in various situations. I feel this is the most effective way dialogue for to be used. Probably because of my preference for narrative, I find internal dialogue quite stimulating. In addition to this, it's best suited for some of my recent stories. Internal dialogue expresses the thoughts of the characters, yours and mine. When these thoughts are of primary importance, are used to give life to the character, your story might shine. Internal dialogue, or inner dialogue, may not be your preferred way to go. This is fine. Every writer should develop his, or her, own tastes in dialogue, just as in every element of the story. No quotation marks are needed in internal dialogue. Any punctuation can be avoided for understanding to take place. But use it as the situation calls for it. If you don't, confusion may set in, and confusion isn't good for writer, or reader.
Interior monologue, a literary device used effectively by James Joyce, Samuel Becket, Virginia Wolfe, among others, is a form of dialogue where the speaker expresses his thoughts, speaking to himself. It is free flowing, stream of consciousness, that can, perhaps, be difficult to understand. It is without punctuation, and sometimes without the limitations of standard paragraphs. It is a kind of "dream speech," and meant to be understood in this way. I say limitations because in interior dialogue any stoppage of the speaker's (or character's) thought process detracts from what is being said. I particularly like this device, and suggest that if you might as well, that you seek it out. I feel it is well worth the effort.
