In my opinion, it would definitely add another dimension to the gameplay as all the NPCs would react realistically to attacks and the environment. It would be complicated, because in GTA 4 and RDR the main weapons were guns, but with ESV the main weapon would be melee attacks as well as magic. But I'm not sure how the Euphoria engine would work with melee as the primary means of attack. I wouldn't want the enemies to get knocked over after every attack, they would definitely have to tweak it so the enemies are stronger and more resistant to being knocked over. But I imagine that it would be very cool to hit someone with your sword and have them stumble back into something tripping them. Also arrows would be much more realistic as in Oblivion getting shot with an arrow barely knocked you back, but with this you could shoot their different body parts to create a limp or drop their weapon and have to fight with their off hand.
Anyway, would you be interested in using the Euphoria engine if Bethesda was able to implement it in such a way as to not make it overpowered?