As the title implies, I would like to know if the free version of Daggerfall available for download is fully patched, or if it's as buggy as the original retail version.

The Free download of Daggerfall has the 213 patch, in the installation instructions, it tells you how to run it, and what to do. You will have to apply the patch (it is very straightforward though as written in the instructions)

Right - thank you.

I recommend also installing the unofficial Daggerfall quest patch, DFQFix, which can be found http://www.uesp.net/wiki/File%3a%44FQFIX.ZIP.

From the Files section of the UESP site:

The most recent and up-to-date quest bug-fix for Daggerfall. To install simply unpack the contents of the file into the ARENA2 directory. For further information, see http://www.uesp.net/wiki/Daggerfall%3a%44FQFIX.