I haven't read the book, so I can't say about my thoughts on it, but as to it's status as canon, I have to go with everyone else's assumptions and guess that yes, it will be considered canon. And if any future Elder Scrolls games take place after it, they will take into account the events of it, even if they take place before it, they will likely take into account whatever revelations are made in it. There probably wasn't a change to the status quo of the world of revelation of new lore that wasn't approved by Bethesda, and it seems pretty stupid to let someone reveal aspects about your world for you if you intend to declare them not canon in the next installment in the series you make yourself, so like it or not, I think that unless Bethesda tells us otherwise, we can assume that yes, Infernal City is indeed canon
Obviously, fans don't actually have to LIKE the new lore, but that's irrelevent. Canon is what the creator's declare is true, not what fans say is. If fans don't like any particular revelation, they can declare that it's not true, but that isn't going to stop it from being used in future games. If those fans are lucky, Bethesda might catch on and retcon the offending bit of information, or just pretend it never happened, though even then it might still leave a bad aftertaste in fans, and I would consider that a fairly desperate measure to appease fans.
Regardless, it doesn't matter how flavorless the characters are or aren't, as long as the lore is sound. Which it is. Morrowind was going to be destroyed FAR FAR before Keyes ever came along. Its in damned Morrowind.
I could argue about that point, at least, when judging the book's merits as a book. After all, the lore is only there to set a background for the story, the real story is shaped by the characters, their actions, and what happens to them. So if the characters are boring, even if the world is interesting, the story still falls short of what it could have been. However, as I said, this mostly applies to a story's merits as a story, as far as the novel's impact on future games, you are correct, if the lore itself is good, even if the characters are boring, it still won't hurt the series much as a whole.
To be fair, though, the character's in the actual games are usually pretty boring too, but they can get away with it as they're games, they have gameplay to make up for it if the characters and story aren't interesting. Whereas in a book, without the story, you have nothing.
I dont know. If you've ever watched your favorite games, books, or movies slaughtered while in the process of switching onto a different entertainment platform then you'd understand why im reluctant to accept The Infernal City as part of the next section of TES lore
This sort of thing is hardly uncommon (For example, the vast majority of movies adapted from video games, and while video games licensed from other medias do seem to fair somewhat better, a fair amount of them are also pretty bad, especially those which obviously come out around the same time as a high budget movie it's based on only to take advantage of its popularity.) Obviously, I've seen examples of great works get less than satisfactory adaptations, but in the end, it helps not to take your entertainment too seriously, I think. One must always remember that a game is only a game, not some sort of sacred thing which would be a sin to defile. If it gets a bad sequel, prequel, spinoff or adaptation, it's only natural not to like it, but life will be more pleasant if you can move on in the end.
However, the examples you gave differ a bit from the case of Infernal City, as Infernal City is an actual new installment in the Elder Scrolls franchise, while it's in a different medium, it's still a tie-in to the events of the actual Elder Scrolls continuity, by comparison, as with many movies based on books, the story of the Lord of the Rings was already finished, the movies were only just an adaptation of the original story, so those who did not like the changes they made could still read the original books, satisfied that they were two versions of the same story and not in the same continuity. With Infernal City, whether one likes it or not, it nonetheless is part of the overall continuity of the Elder Scrolls.