Also, I don't care how advanced random generation gets, it's still boring, repetitive random generation.
I find it unlikely that you would be able to tell the difference between well-generated land and Oblivion. Generally, almost any part of Cyrodiil that's not a city, dungeon, or other "object of interest" is just rocks and trees, and those are not placed with any particular realism in mind. I've been in the woods before, I don't recall it being saturated with huge boulders just randomly laying around everywhere I went. I'm not suggesting randomized areas to replace hand-made things, but as a way to supplement areas that don't need or benefit from hand-placement. Are you really memorizing the empty wilderness to the point that you'll notice and for some reason hate it when an area that had 7 trees and 5 rocks before has 8 trees and 4 rocks when you start a new game?
The faulty exploration in Daggerfall isn't really a matter of it being randomly generated; you can make flat, empty nothingness by hand, too. The game doesn't "need" to be that gigantic, since I don't think technology is at the point that it could be effectively filled. However, I do think that it needs to be larger than the overworld provided in Morrowind and Oblivion, in order for TES to utilize its full potential. To really create a character and roleplay them in a sandbox world, the world itself needs to be a living thing; not just empty wilderness. You need to be able to DO things in that world, let the character interact with it. Those are the toys within the sandbox, while the base material is the sand, but you need a balance of each.
For example, an active economy. Even in the most basic gameplay sense I think this would be beneficial; instead of grinding for money, notice that minotaur horns are in high demand and take a relevant job from the fighter's guild. It allows for many more roleplay options with characters as well. You can influence supply and demand, watch settlements prosper or suffer with that influence. Merchant caravans give extra employment for mercenaries, and live, nonscripted bandit attacks instead of a single event that you trigger at your leisure and which never happens again. Stockpile deerhide, then arrange an accident for the local hunter's lodge that's not traced to you and rake in a fortune. Hear about an incoming attack and work to boost the local economy, and watch the garrison be stocked with healthier, better-equipped soldiers.
Stuff like this would require more space. Farms, larger roads, hidden bandit camps. If the engine improves enough for "real" battles instead of the 12-man battle for Bruma, we'll need larger cities to contain those people, larger fields for them to battle on. Randomly generated wilderness lets you much more easily create that space, and keeps it varied for the different-every-time effect that comes with non-scripted events. You don't have to replace hand-placed anything with it. Say a certain chunk of land in Oblivion has ten "things" in it, aside from the wilderness. Using the same "random grid forest" example from before, any of those zones could have a chance of containing something, or be designated to always contain something. Is the game
really going to suffer because the dead body with a mysterious note on it is laying under this tree over here instead of that tree over there? I doubt it.
Randomness can also apply to quests without making the hand-made ones suffer. In the Fighter's Guild we apparently walk in, go through the storyline while taking every single job they have (sorry, other members), then finish it, and nobody has any reason to ever go there again. It makes no sense. Factions like that can benefit from smaller randomly-generated jobs (protect this farmhouse, clear out this cave, punch that guy who shorted me a nickel, etc.) and still have a storyline. People always recommend you go to the Fighter's Guild to make some money doing odd jobs. I'd like to actually DO that for once if I want to be a member without doing the storyline, or save the storyline for later, or continue being an active member after I finish it. Those random jobs would fit nicely with random areas, spawning encounters in various unoccupied zones with various factors in the quest itself so it's almost never the same thing in the same area. Even directions wouldn't be too hard; zones could easily be designated as being in the "northeast" part of the forest, or west of static landmarks like cities or roadside inns, or even a certain direction from a random area of note you've already been to (north of the ruins of Nowhere that you discovered).
Random vs hand-placed isn't some good vs evil argument, there are pros and cons to each, and I think for TES to be the best it can it needs to be able to utilize or avoid those pros and cons as necessary, instead of rejecting a system outright.