Does anyone actually explore the world in Daggerfall, or use fast travel only? The game just seems way to big to do any kind of outdoor exploring.

I just fast travel. IMO there's no point in exploring if things are randomly generated.

I do hal-half, depends on my health, how much time I have to play, etc.

Has anyone actually found anything cool when randomly exploring? And for that matter, how the heck do I swim?

Randomly wondering through the forest is good for loot and leveling (sleep for 99 hours until a enemy pops up), other than that it isn't that useful. The best case scenario would be to stumble upon a witches coven which is very unlikely, or a dungeon which isn't that useful since you could get a handful of quests that reveal dungeons much easier.