Meg: Well, hello there, Julia! Long time no see!
Julia: Meg! Hi! What a coincidence! I haven’t seen you in ages! What are you doing here?
Meg: I just got a new job in the city, so I’m shopping for some clothes. Hey, what do you think of this shirt?
Julia: Hmmm … well, you know how much I love blue. See? I’ve got the same shirt!
Meg: You always did have good taste! What a small world.
Well, hello there … Notice the emphasis on “hello,” which shows that Meg did not expect to see Julia.
Long time, no see! This is a common expression used to say hello to someone you haven’t seen in a long time.
What a ___! This exclamation shows a great degree of surprise, joy, disappointment, etc. (What a surprise to see you here! What a joy to have you with us! What a shame that you have to leave so soon! What a wonderful idea that is!)
You always did have good taste! Notice the stress on “did,” which Meg uses to emphasize the fact that Julia DOES have good taste! Meg says it in a joking way because Julia likes the same thing that she does.
What a small world is a common expression used to describe a chance meeting or other such coincidence.