I think Daggerfall could get up to Morrowind-level graphics, althogh it'd be quite painful. Right now the two main ideas are improved textures and possibly even models, since, well, mobile NPCs in Daggerfall are already sprites of rendered models. Wouldn't look too out-of-place. Reaching the amount of polygon depth of Morrowind may be difficult, simply because everything in Daggerfall is denser than in other TES games. Think about the largest cities, like Daggerfall, Wayrest, and Sentinel. Each of those has hundreds of houses, and almost all of them are viewable from one point now due to the view distance. Anything more than ~150-200 polygons for each house and you're already killing lower end computers, assuming no awesome LoD system/render culling is implemented anytime soon. Though I think Lucius
does plan to implement these, which already makes DaggerXL much more optimized than Bethesda's Gamebryo builds.
On the topic of actual graphics, for some reason, I think for the most part I'd want to play Daggerfall with its original art assets. All those neat things promised but never implemented - enemies on horseback, interesting wilderness, etc. for some reason, I'd
love to imagine what all these improvements would look like with the original graphics, as they would be in 1996 if Bethesda managed to accomplish all of their promised features. That's just me, however.
DaggerXL looks really good, but I doubt DaggerXL will allow the filling of the gap between Daggerfall's graphics and Morrowind's graphics. To anyone involved in this project, is that a realistic goal? The largest technological gap in TES series between Daggerfall and Morrowind and I'm not sure about Daggerfall matching Morrowind's graphics. Is that possible at all?
You guys should visit the DaggerXL forums more often. A lot of ideas for graphical mods/overhauls are being tossed around there, may give you a better idea of what is/isn't feasible than in this thread and the blog alone.