Confirmed for Daggerfall city. For me, the anomaly ended as I entered an adjoining cell.
I tried with Sentinel city and nothing happened.
As in it disappeared? That's odd, it persisted as I went back and forth across the border. I was having fun jumping over the gorge.
I tried with with various direction at Wayrest city as well, to no effect. I'm not sure what the requirements are for forming the gorge, but I have noticed that if you walk just inside the eastern border of the Daggerfall city area, you get some odd graphical glitches with the terrain. Maybe DFC is just a city that doesn't mesh well with the surrounding terrain.
This is very interesting but I think something is missing here. I would not call that a gorge. It's more like a trench. The myth is for a "large gorge." Now, a regular gorge is large, but a large gorge? I don't think whoever saw the Gorge of Lysandus saw this. This is too regular, and I think they would have described it differently. OTOH, their description may have been a vast exaggeration.
I thought about that, about whether this as truly what they were talking about. But I can't imagine how it could be much deeper. If it's supposed to be just huge, I can't imagine how it's been so difficult to find. I've spent a good amount of time (when I first made this thread) running around with the speed cheat scouring the area, and I found nothing.
I also had a quick search on the google archives of alt.games.daggerfall and found no mention of weird terrain near Lysandus' Tomb. Is the uesp the only reference?
As far as I can find, other than the memory of hearing about it somewhere, maybe here a long time ago.