I think the main issue is that some instances can be escaped from with levitation/recall and that would break the quest and wreck the gaming experience.
But the other issue is that if you're levitating and flying about your foe and casting spells or shoot arrows, you're pretty much untouchable by most non-magical creatures in the game. So... levitation is as exploitative as it is fun. Why battle melee style when you can fly around and be virtually untouchable unless every enemy is a mage/archer.
Agreed. If I wanted to shoot stuff from the sky levitating, I personally would also like melee oriented enemies to not just stand around like idiots, but seek shelter or hide in a hallway where I couldn't fly away if I followed them..
but that's entirely too much for for a game released with a few years of dev time. To implement everything people want would take ages. Not only to do, but to get it all working together in a reasonably stable way.
Levitation would require better enemy AI, better environments (and ones that won't break quests if they're approached in a way the Devs didn't intend), and a ton of other things just to make it "better instead of taking it out"
Solution? Give it the axe. Sorry, but implement cool things that are feasible. I loved levitation, but if it doesn't work, it doesn't work. People who say "well they should just improve it instead of take it out" apparently don't get that "improving" a feature so that it meets the requirements of the devs and lots of fans might not be feasible.