Imagine centre of the capsule is about waist height, the current camera local offset of 0.0, 0.8, 0.0 represents player's eye height.
It took a fair bit of tweaking to dial in good dimensions for the player capsule and keep eye height at about the right level. Daggerfall's dungeon geometry can be quite woeful in places, so very easy for player to become find impassible spaces.
One of the problems with raising camera height above capsule is that jumps in low spaces will result in camera clipping through geometry that capsule would have registered a head-hit against. In the case of horse, for example, jumping while passing through stone arch into castle Daggerfall would clip camera through top of arch model (if camera sat above capsule).
This can be a can of worms, it's usually easier just to let collider do the work. Maybe a slightly greater skin width
would help rather than lowering height too much or raising camera outside collider. I'm hesitant to change controller too much, and would need to retest against some trouble spots if we do.