It is indeed rather weird that RPGs similar to
Daggerfall seem to be extremely hard to come by.
Undoubtedly of interest, if only historical, should be
Legends of Valour, which is in fact one of the titles that is known to have inspired
Arena (and if it weren't known you'd immediately spot the similarities). Same goes for
Ultima Underworld except this one is more widely known and popular.
I'm not sure if
Arx Fatalis may count because I never played it myself but it seems to share some similarities to
TES games while taking place in a underground world like
Ultima Underworld.
When thinking on the topic of which games may truly count as similar to
Daggerfall I would often try to outline the features that make
DF what it is, at least for me.
I believe that, first and foremost, it's the random quests that will throw you around the game world in a much unpredictable fashion that make up a great deal of fun playing
DF for me. Incidentally this is what was completely removed from
Morrowind, to my disappointment. However I don't feel that the same kind of random quests but in a space mercenary/trader setting is about as much fun as in a medieval fantasy world.
Daggerfall tries very hard to be a convincing imitation of a living world. The day/night cycle, shop closing times, seasons and weather changing, and of course the attempt to make almost every possible location explorable in first-person with unrestrained movement (rather than treating you to static images of shops, inns, temples etc. as in many other first-person RPGs) all contribute to this. Of course, the illusion of a real world alone, even if accomplished successfully, does not automatically mean that the game setting will be convincing or appealing to the player. There's also extensive lore background on factions, nations, rulers, myths and so on, which was ultimately to create a dynamic world that would change regardless of the player yet could be influenced by the player's choices but that turned out to be a task too daunting and was not fully realised in the game.
Nevertheless I quite like the setting in
DF, and although
Morrowind certainly puts a lot of effort into seamlessly interweaving in-game lore, plot and gameplay, some of the more "mundane" aspects that were done away with (like arriving late in a town and having to rent a room and sleep before you could go shopping the next day) are very nice to have in
DF and
Arena.
The whole skill training system is what I like a lot in
DF, especially the part that you need to rest before a skill gets an increase. I believe at least some roguelikes have a similar skill system. On the whole, the game is very focused on building up your resources, and it does not really get tedious or a chore. There's a lot of randomness in what equipment you get, either from shops or from dungeons, and the fact that you simply can't check out every shop in every town to find what you need (you could but that would be too time-consuming an effort) contributes to this feel of realism and consistency while increasing variety between playing sessions.
Confusingly large dungeons are also fun for me! Not always though, some are really bad. But you do get this feeling that you're braving real obstacles rather than just walk around in predesigned decorations to fight monsters in.