I liked Daggerfall, but despite its size, it lacked the substance of Bethesda's later projects. Everything was unnecessarilly huge (trying to walk around any big city quickly became a pain), there was no reason to travel because there were no interesting landmarks, and just about everything was the same cut-and-paste scenery that spanned for thousands of miles.
They only had a very small team working on Daggerfall, so the repetitive, random buggy nature is completely understandable. I have heard that the lead programmer was effectively the -only- programmer, and had to manage Bethesda's other projects simultaneously. Daggerfall is unfortunately, a first draft. I'd like to see it rebuilt and infused with some new ideas.
The thing that strikes me most about the size of things was not the fact that you had a super-detailed city (you didn't), but that it simply -felt- large. Granted, navigation was confusing - but it doesn't have to be. A more careful structuring of the layout of the major cities would make finding things much easier. There's been a lot of research on procedural generation in the intervening years, so much so that we can now generate highly plausible modern city layouts - why not extend it to medieval ones?
This scope also led to a different approach to city game play. You weren't able to explore and map and memorize every city, nor were you able to interrogate every NPC - so getting from job to job effectively became a navigation mini-game, and NPCs were simply there to be atmosphere and signposts, not conversationalists. Whether or not you enjoyed this was another thing. It certainly was distinctive, and neatly dodged the issue of creating believable AI.
So, I'd like to see some kind of return to this 'feel' (with a mix of hand-crafted and generated content), rather than a constant shrinking of scope. Unfortunately with the push towards more detailed models, this isn't going to happen with a mainstream title unless we can find a way of generating many high-detail assets with a minimum of manpower.
Fans and indie devs on the other hand, aren't held to the same graphical standard, and are free to muck about and experiment in their own time
I do very much like the hand-crafted feel of Morrowind though. As a sequel, I would have preferred MW with larger cities and dungeons, instead things seem to shrink again with Oblivion, and lose any fantastical charm.