Arena and Daggerfall (the two predecessor games) were procedurally generated, and just felt "more of the same" after a while. My understanding is that the world in Morrowind was lovingly crafted by hand. This might have resulted in a small in-game world—but each inch of that world felt special.
Interestingly, the Witcher 3 is probably the one other game that gave me the same "this world is handcrafted" feel (dunno how that was built though).