All Arcanum or Morrowind would have needed for either to be at least a strong candidate for the greatest RPG ever was a decent combat system. Or maybe just a combat system that was not complete garbage. Unfortunately, as it is, both games are candidates for having perhaps the worst combat of any RPG I ever played. As a dedicated combatfag, that makes it very difficult for me to enjoy either. Not their only weakness, either, but perhaps the most important.
And it is not just that the combat itself is easy and boring, but that the weak combat drags down everything else, including the game's strengths. Arcanum's immense variety of builds hardly matters when almost any build not deliberately gimped is going to beat everything easily. Likewise with exploration. In Baldur's Gate, for example, finding something as simple and generic as a +1 Weapon was exciting, because the game was difficult enough that such an item could be a game-changer. Finding all the theoretically cool gear Morrowind, for example, has scattered around, is a lot less interesting, because it is not as if I
needed any of that stuff. "Hey, I've found an OP item. Now combat will be easy...oh, wait, it already was." A similar issue comes up with the high degree of articulation in Morrowind's equipment slots. It would indeed be interesting to finally fill all those slots with a complete set of uber gear...except we can fill them with junk and still cut through everything with ease, so what difference does it make?
When I first played them, as someone who had been playing cRPGs since the 1980s, those games both looked like massive decline. In retrospect, seeing the even worse decline since, they look a lot better. They certainly did have many outstanding features. At the time, I was hopeful that they would someday spawn sequels or "spiritual successors" that incorporated those features while improving on the ghastly combat and other flaws. Needless to say, that is not what happened, and it appears unlikely it ever will happen.
- full 3D including a vertical axis, which makes for better exploration than BG's isometric maps
I would like to emphasize this a bit, since it was one of Morrowind's features that really impressed me, and one you neglected to mention in your opening post. It was one of the rare 3D RPGs where being 3D actually mattered. You could jump, swim, fly, etc. and thus actually operate in a three-dimensional environment. You could take tactical advantage of this, by, for example, levitating above melee mobs and raining destruction on them from above (not that such clever tricks were actually needed, unfortunately). Most 3D RPGs might as well be 2D for all the actual, substantive use they make of their three-dimensionality.
- better dungeons (most of Morrowind's dungeons are tiny and boring, but even those are better than BG1's narrow labyrinths that fuck up the pathfinding of your party)
So you think we should forgive all the numerous and massive flaws in Arcanum and Morrowind (a position to which I am sympathetic, by the way, since as you rightly say, no game is without flaws), but this one minor flaw in BG1 of poor pathfinding combined with narrow corridors (and an argument could be made that it is more feature than flaw, since coming up with tactics to deal with the narrow corridors can be an interesting challenge), is enough to make BG's elaborate dungeons, all of them with a story behind them and excellent crafted encounters, worse than Morrowind's copy-pasted crypts and such? An odd double standard.