Daggerfall was too ambitious indeed. I fully agree on that. But back then, Bethesda was not "on the map" for RPG as was Origin Systems for the Ultima series. Thus, being an independant developper, they were allowed to take risks. And it turned out to be a GREAT and positive risk to take.
Today, Bethesda is well established in the RPG market. They could never take such a risk again. They are already digging the gold mine that is console gaming and they are making their games more mainstream. They are no longer an independant company.
Which is really pretty sad, that gamesas thinks that because they are established, they are not allowed to take risks. Origin themselves, at about the same time
Daggerfall was under development, decided to take the biggest risk anyone had ever made for RPGs, and attempt an extremely expensive-to-develop game for a genre that didn't even exist yet. There was lots of speculation that it'd flop, and could possibly even force Origin out of existence. That game was
Ultima Online, the world's first MMORPG. And, well, we saw how that turned out; their subscribers grew at a rate some 4 times as fast as their rosiest estimates, and it wound up being a huge success, birthing the most profitable genre of games out there.
Good to see I'm not the only one with these sentiments, though I think you might be being a little hard on Morrowind for borrowing from real world history and cultures. I thought the environment was one of the real successes of Morrowind, though I absolutely agree that a bit too much is made of its "alien" and "unique" gameworld.
I'll admit a bit of a bias: I was originally born in the Deep South, and I've come to hate it. So when the Dunmer act just like them, just calling the Imperials "outlanders" rather than "carpetbaggers," it irritates me to no end.
The main plot, however, was a big disappointment for me, and to finally come around to the original topic, this is where I think Daggerfall might actually be underrated. (As if such a thing is possible on the past games forum!) I actually thought that Daggerfall's atmosphere had it all over Morrowind. The Illiac Bay seemed genuinely dangerous, and the politicians, though they were just 2D sprites, felt like real people that I needed to be wary of. I miss getting letters from people, being attacked by random thugs during quests, and generally being trusted to make sense of a convoluted and politically driven plot on my own. I've done the "You're the chosen hero" plotline in RPGs a million times before, but Daggerfall is so far my first experience with the "You're the pawn of a powerless emperor forced to determine which squabbling vassal to trust in a world of people who would think nothing of killing you. Your only choice is who's pawn you'll ultimately end up, and then there's a giant Dwarven robot" plotline. Yet it seems to have become an almost accepted fact that Morrowind had a "brilliant" storyline.
Indeed, this is what gets to me, and how I feel exactly. If one simply went to the UESP Wiki, and looked at the main quest lines for the two games, one realizes that
Morrowind's is just, in the end, a straight line, with a couple points where you get 3-4 quests you may do in whatever order you wish, but you must all complete them consecutively without touching any other main quests. Meanwhile,
Daggerfall, in gamesas's attempt to be as unlike
Arena's clich?, linear plot, wound up with a deliciously complex and tanlged questline, with a plot convoluted enough to make
Metal Gear Solid 2 seem almost straightforward. In DF, I loved how you wound up with a bunch of leads in front of you, but with your choice to which, if any, you followed up on. And plus, the whole basis of political intrigue rather than
Morrowind's cheap reliance on a more or less unambigously bad guy who happens to have lots of superpowers, was a major attraction to
Daggerfall. As a result, the game's main plot characters didn't feel utterly flat like
Morrowind's did.