"Generate the item you're going to get" also sounds like "Ok, the quest is Go Find My Stolen Family Heirloom. Nearest appropriate dungeon is The Flooded Cavern. The Stolen Family Heirloom is generated in the final room, in the boss's chest."
i.e, quest item. Not leveled magic item.
It could....but if you listen to the way he says that line, you can hear that he seems to be refering (in my opinion) to the quest reward.
I think the random levelled item for a random levelled quest is good enough. Of course, all side quests shouldn't be levelled and random, but the everyday problems of the population. A thief stole a ring very dear to me! My son went a few hours ago on a little hike through the mountains, but he hasn't returned yet! Someone ambushed the caravan coming from Cyrodiil!
Just let the generator have a small chance that the reward is above our level, and a smaller chance that the guy was lying and tries to kill us, or just won't give a reward. But don't put legendary weapons into it. Please.
All these 'side quests' are hand crafted.....aka, there is a limited amount of them. Does this mean now, later on in the game we'll end up regretting doing these quests too earlier and getting crappy rewards....which at higher levels are useless? I really have an uneasy feeling about all this.