I think by far the biggest "would be so good if it was good" aspect of daggerfall is the reputation system. Daggerfall has by far the biggest and most complex political system out of any Elder Scrolls game, composed of a web of hundreds of different factions.
Not only does it have the biggest number of joinable factions (Figters, Mages, and Thieves Guilds, Dark Brotherhood, eight Temples, ten Knightly Orders, and nine Vampire Bloodlines), most of which have a relatively large number of subfactions, most of which seem to be there for internal gameplay reasons (as it seems all types of faction service provider need to be their own subfaction) but some exist for more interesting reasons (e.g. each temple has an associated subfaction that serves as its "military arm", such as the Order of The Hour for the Akatosh Chantry or the Maran Knights for the Benevolence of Mara), but also a huge number of non-joinable factions. Each individually named noble and political figure in the Iliac Bay counts as a "faction" for purposes of the reputation system, and each of the 45 regions in the game has its own "Court of (Region)" and "People of (Region)" faction.
Other factions include the various witch covens, the various Daedric princes, the King of Worms and the Necromancers, the Underking and his Agents, the Blades, etc. You also have reputations with various general "social groups" such as commoners, scholars, nobles, merchants, criminals, your initial reputation with which is determined by your class and your answers on the background questions during character creation, although I'm not entirely sure if these also count as "factions" internally.
Every time you do (or fail) a quest for anyone, the resulting reputation gain (or loss) cascades down to other factions. Every time you gain reputation with a faction, you also gain half as much with their subordinates and allies, and lose half as much with their enemies. But the most interesting part is that the web of what factions are allies or enemies actually changes dynamically. While some relationships are fixed, most of them are randomly rolled at the start of the game, and can also change randomly once per in-game year (asking NPCs about "Any news" will most commonly get them to tell you about changes in faction relationships), which means that the way your reputation gain cascades down through different factions also changes dynamically over the course of the game.
And all of this amounts to a system that... doesn't really have that much of an effect on gameplay. Especially for a game that makes such a big deal about being set in a region known for its intricate political intrigue.
Sometimes NPCs will refuse to talk to you based on your reptuation, but no merchants will ever deny you service based on it, even if your reputation is too low to converse with them they'll still do business with you as normal. Sometimes commoners on the street will be rude to you and refuse to give you directions. Quests are *very rarely* affected by reputation because most NPCs involved in quests are created ex-nihilo by the quest itself and your reputation with their faction won't affect what happens when you interact with them unless explicitly scripted to. The instances of quests where things can play out differently according to your reputation with different factions can be counted in one hand, and one of the most prominent ones (the one where, after a certain point in the main quest, various NPCs or factions may send you an important letter with information about the Numidium, the Mantella, or the Totem of Tiber Septim if you have a high enough reputation with them) is completely broken in the vanilla game.
