Quaternion interpolation works well, but it introduces twist, which is sometimes not what you expect. When you start composing many quaterions, you get some wild rotations, going the long way, or doing an additional 360 twist, and whatnot. Mind you, I'm digging 20 years back in my brain here, I don't remember many specifics anymore.
First, because of IK, we cannot control orientations exactly. Newer techniques like motion matching/IK can generate new orientations on-the-fly, depending on what a character is doing and the character's environment. Gimbal lock matters for camera movement as well. Looking up with Euler angles is a great way to induce a seizure if not done correctly.
Second, the "wild rotations" you mention has a very simple solution employed by every engine I've worked with. Basically, you just constrain the real part to be positive which fixes your interpolation on one half of the Lie-manifold which ensures the arc taken is as short as possible.
Matrices and Euler angles are both horrific to interpolate.