Just out of curiosity, what are your criteria for defining pixel art?
I'm not a fan of AI upscaling / filtering either but that's not reason enough for other people not to use them. The only way to improve these processes is by using them after all, not by denying them because they're 'not ready' yet.
A computer will never beat a human when it comes to creating art, the decision process differs too much between the two. It can produce a decent enough result when it's been trained well enough. Someone has created neural AI upscales for Doom textures and most of those look pretty damn good, it really depends on the person using the tool and the amount of material available to train the AI.
At the end of the day, there is nothing more subjective than art, it doesn't even have to be beautiful to be considered beautiful. Daggerfall's artstyle is all over the place even without replacements but that doesn't stop anyone from appreciating it for what it is.
Some of the sprite proportions are completely off, the styles clash and there are plenty of 'pixel artifacts' to point out where the palettization of an image introduced some very offensive color choices for certain pixels. This is because most of Daggerfall's texture were most likely not drawn pixel by pixel but instead painted, probably using DeluxePaint or a similar program. This isn't like JRPGs or Metal Slug.
You can find higher resolution versions of Daggerfall textures in Battlespire too and those definitely weren't done pixel by pixel.
Don't even get me started on the quality of some of the models in Daggerfall
I still enjoy the hell out of the game though.
It's fine if your opinion is that this upscaling shouldn't be done, that won't stop others however. Some people just don't like pixels while others love them, there is no right or wrong regardless of what you believe.