And I saw it showed everything, Morrowind, Cyrodiil, and all. Can you really play all this area? I've only just started Morrowind, but compared to the arena map it's tiny. I've never given that much thought to the 2 first games, but this made me want to look at them. Would it be worth using DOS box to play them, are are they too outdated?

Okay, first thing you must realise....yes you can play all of tamriel in Arena...but everything outside town is just randomly generated landscape (not per game, the devs just generated the landscape and saved it). You cannot walk between towns/cities in Arena as it just loops back on itself, and quite frankly you wouldnt really want ot anyway.

So while it looks bigger, considering everything is just generated land it is all the same and pretty boring....providing no real reason to explore.

That's essentially correct. You can visit anyplace on the continent in Arena-- all the provinces, and multiple cities in each area, except for the central province which only has the capital. But the only real difference between provinces is cosmetic. Different textures on the building blocks, different graphics for the locals, different weather patterns. Nothing really unique in any of the provinces outside of the two unique main quest dungeons in each.
I do disagree with Da Mage about there being nothing worthwhile outside, though. There are little mini-towns, traveler's inns, roadside temples, small crypts, abandoned buildings, and other little things to explore, as well as full sized dungeons. Arena has some of the best mini-dungeons of any of the elder scrolls games. But since there's no real pattern to any of the outside structures (like he said, all generated like a tossed salad) you can pretty much find the same sorts of random buildings outside of any city you pick. Just choose a place at random and leave the city gates, and start wandering. Check your map every so often for buildings-- anything with a little red square on it is a 'dungeon', anything from a full underground catacomb to a one-room tomb in a cemetery. My favorites are the abandoned buildings.