My understanding is that in the Original Daggerfall (I was reading the original manual's PDF over the last couple days), there are two movement or mouse modes.
In one, the viewports view is moved by arrow keys, and the mouse moves within the box changing the cursor to an intended movement, like turn left or turn right if in the upper corners, or move forward if at the top, etc. Much like in Eyes of the Beholder series.
The other mouse mode or view mode, had the mouse moving the entire view port, like in most modern games.
Anyway, ALT is only functional in one of those modes, supposedly. Has no effect in the other. So it depends on what Mouse Mode or View Mode you choose and how it is controlled.
This is why in another thread I just mentioned that, it was about having a Toggle for Walk/Run, Crouch (where someone said that was Stealth which is debatable), etc.
So I'm not sure how ALT and Crouch actually should effect things. ALT when it is allowed, reduced movement speed to 40% of current. It acts much like most games walk modes. Crouch reduces your height, may have some slight reduction to speed (perhaps depends on mouse mode and view mode chosen, unsure) and in most Elder Scrolls games, the two combined for effecting your detection when in Stealth. Traditionally in the later ES games, C makes you crouch which enters you into Stealth Mode -- naturally it reduces your visible height, so you are harder to detect. But you could also crouch-walk and that, even in Skyrim, improves your ability to not be detected or you chance at low Skill Levels to remain in Stealth undetected. However, I've always been able to achieve the same thing by simply being Crouched and moving forward very slowly (without using the Walk toggle) by tapping the forward button, so that my forward movement is about the same speed. This often results in the same ability to be undetected.
Anyway, so the manual mentions both and that it depends on the mouse mode or view mode, that ALT is only active in one of those modes (I believe it is active in the Eye of the Beholder type mode), etc. Not sure how it should be truly made to work.
(Similar issues for me occur for the trigger attack versus choose from Chop/Slash/Thrust modes. I guess that can be just an option, but sure would be great if Click to Attack depended on how you moved right after the click to pick the Chop/Slash/Thrust instead of using such a large hold right button down and move mouse, which tends to move the view with Mouse Look moving the view port -- doesn't work that hot as is.)
Not saying it should be changed, but both of these would be nice to clean up by the 1.0 Release or after release as ease of use options for the player of DFU.
As to the Sneak Indicator -- I would like it to indicate that I was attempting Stealth, however that is intended to be done. I don't think anyone is meaning that it would indicate Undetected or what level of dectection your are currently at. That was done in later games, definitely for Oblivion and Skyrim, not so sure about Morrowind (probably detection level was shown to some degree). But here, I just think it is meant for ease of use, to remember if you are trying to sneak or not. Because unfortunately at times people forget if they are crouched or not. WORSE FEW WILL CHECK IF THAT HAVE ALT ON OR NOT, since there is no real way on the keyboard to track that even by a LIGHT INDICATOR -- which CAPSLOCK and NUMLOCK DO HAVE on the keyboard -- an indicator light.
Of course, if you could use just one button for complete best stealth attempt (ALT plus CROUCH combined), then CAPSLOCK would make an awesome keybind -- as then you could check your CAPSLOCK INDICATOR LIGHT ON KEYBOARD to know if you are in Stealth Mode or not as a workaround