It's less unbelievable than if you character just smacked into a glass wall surrounding the island, isn't it?
I have to agree with this. If Bethesda had tried to avoid this, they would have had to model the land of the mainland and had it blocked off by an invisible barrier, or have an invisible barrier around the island before you get far out enough to see any other land, either way, though, you have the dreaded invisible barrier, and the latter also limits the amount of underwater exploration possible. The endless sea simply seems like the best option available. It certainly isn't too much of a problem, since there isn't actually any reason to swim out to where the mainland should be, considering that there's nothing there, the only reason you'd want to go there is just to see how far you can swim, and due to the low view distance, you'd never be able to see where the mainland should be from Vvardenfell. In the end, when playing the game, I generally don't find myself thinking that there should be land where there is nothing in the game.
Considering some of the alternatives, I think an endless sea was the best choice. I could live with the invisible barrier in Oblivion since they had to put limits on the explorable area of the game somehow, and since Cyrodiil is mostly land-locked, they couldn't use the endless sea method. The best alternative would probably be to use natural barriers like mountains instead, but it would seem a little odd for Cyrodiil to be surrounded on all sides by mountains with no passes through them, especially when you consider that in the lore, Cyrodiil isn't like that. At least with invisible barriers, you don't notice them unless you try to walk through them. But in Morrowind, since the game took place on an island, they had a very easy means to use a somewhat more natural way to limit the size of the map.