my biggest problem with the ayleid ruins (and the fort ruins, and the dwemer ruins....) is that they don't feel like "towns and cities". where is the infrastructure? the residences? shops? town square? the ruins look like generic, if well designed, dungeons, not like real places. what could the massive twisty halls under the earth possibly be used for, besides storing l00t and enemies for the player to combat?
The problem is that they WERE designed to be dungeons, so Bethesda had to make sure that they would make fun dungeons, whether Bethesda succeeded on that is another matter, but the fact is that if they're going to put dungeons in the game, they need to make sure they'll be interesting to explore, because it's a game, it needs to be entertaining, and would realistic ruined cities make for entertaining adventuring? Well, maybe some would say yes, but evidently those people aren't game designers, or to a lesser extent, writers of fiction involving adventure general, because pretty much every game involving exploring dungeons has dungeon designs that don't make sense.
But in that regard, Morrowind was actually more realistic than Oblivion, as while you still had unrealistic floor plans and, for places that often had a fair amount of structures above ground, the ruins tended to have a surprisingly large amount of underground parts, but at least you got things like rusty Dwemer furniture, machines and ancient Dwemer artifacts that seemed to show that the place did indeed once serve a purpose beyond being a place for adventurers to explore.
But back to the initial subject, it seems to me that one of the purposes of Knights of the Nine was to fill in the aspects where Oblivion was found lacking in terms of lore, so it's not surprising that it would give us a bit more information on some of the Ayleid ruins, because honestly, we knew pretty much nothing about most of them, they were just kind of there.