This small mod replaces the WOODS.WLD file in Daggerfall's arena2 folder to use a wider range of heights. Daggerfall's default heightmap used only the first third of the black to white spectrum, this spreads it out over the whole spectrum. The results are quite interesting and nice, but it should be noted that some regions and biomes conflict with it and may end up with ugly cliffs or the land may become water entirely. It's not game breaking, locations are unnaffected, but it can ruin immersion.
Screenshots:
https://dl.dropboxusercontent.com/u/32146097/DosBox%202013-09-04%2018-13-56-20.png
https://dl.dropboxusercontent.com/u/32146097/DosBox%202013-09-04%2018-16-21-25.png
https://dl.dropboxusercontent.com/u/32146097/DosBox%202013-09-04%2018-16-29-54.png
https://dl.dropboxusercontent.com/u/32146097/DosBox%202013-09-04%2018-18-09-72.png
https://dl.dropboxusercontent.com/u/32146097/DosBox%202013-09-04%2018-19-44-01.png
https://dl.dropboxusercontent.com/u/32146097/DosBox%202013-09-04%2018-23-37-58.png
https://mega.co.nz/#!Ml5hSb4S!ekM7a111bgJfOZxRUPCrWG5SAkxcwK0YUibOdFXSmgA
Simply place it in the arena2 folder of your Daggerfall installation. It wouldn't hurt to back up the original as well, in case anything goes awry.
Forgot to mention, none of this would be possible without Hellfire's wonderful http://www.gamesas.com/topic/1403539-somethings-i-found-hidden-in-the-wilderness/?p=21430696
If you like this mod, give him some thanks.