The budget/time constraints are old news (as is anything written in this thread now), and while it's nice to know the reasons behind the disappointing aspects of IWD2, it doesn't make them any less disappointing. And when adding it all up, I find IWD1 a vastly superior game (even with its own numerous shortcomings).
First, the 3rd edition implementation is... well, there is no fitting expression other than "half-assed". A whole new, high-resolution action economy underlying the combat system? Sorry, no time to implement it, we'll just use the standard IE stuff - who cares about attacks of opportunity, 5-foot steps, move actions... Oh, a significant number of combat feats are based on those elements? Uhm, let's just cut them out and implement a hack based on the IE weapon proficiency system or something instead. Gee, there seems to be a very small number of feats in the game now, kind of makes gaining them or playing a class with high feat progression pointless... Is it some exotic, little-played class we can ignore? Shit, it's the fighter. Uhm, let's pad it out with flavor feats from the Forgotten Realms campaign setting, surely that makes up for it! So, skills... Even with the explosion of similar skills (who takes Hide but not Move Silently?), if we give classes the number of skill points the PHB says they get, they won't have a way to spend them... Better cut it down to 1/2 the normal rate for everybody but the rogues. Etc. - it's all understandable and very reasonable given the constraints - and it's all so disappointingly half-assed.
But hey, 3rd edition multi-classing is shiny and interesting, and we managed to implement that! Players can now mix and match levels from different classes, and create a huge variety of builds - and given that a variety of character builds is so important in RPGs, at least something works well! And it does... Well, there's this small detail of the 3rd ed multi-classing they kinda overlooked... Namely, while "mundane" class combinations are quite interesting and work well, caster multi-classing is something completely different. Casters scale in power with caster level, so non-trivial (cherry picking a level or two) multi-classing of a caster is (in terms of simple, uninteresting power) a horrible gimp. I personally don't mind horrible gimps (if they're intended by the player and interesting to play), but in a combat-centric game it kinda limits things... I'm still not sure did Wizards intentionally design the system so caster multi-classing is only viable with prestige classes that mix the exact caster level progression and non-casting features your build uses (resulting in a huge number of lazy combinatorial prestige classes filling up splatbooks that need to be bought). However, since IWD2 implements exactly 0 (zero) prestige classes, the point is moot - and the number of viable builds is severely reduced in the game (compared to the expected 3rd ed possibility space). Still larger than 2nd ed implemented in IWD1, don't get me wrong, but - disappointing again. (aside: to fix this in NWN2, they had to add prestige classes AND the Practiced Caster cheat - can you imagine a feat that gives you +4 BAB in the same circumstances? Or 4 levels worth of any other character progression element from any class? Epic feats like Gain:Attribute excluded because they are, well, epic).
Shall I tell you about encounter design? Actually, IWD2 has better (more challenging) encounter design, throwing mixes of melee/archer/multi-caster enemies at the player much earlier than IWD1, and giving them new tricks at a steady rate. Also, since in 3rd ed even regular fighters have a number of active abilities to use, things get more interesting on paper. Ironically, instead of making the game much better, for me this only served to highlight the inadequacies of RTwP for games with consistently interesting combat encounters. Much has been made of the "boredom" of playing a fighter in IE games, who doesn't have many buttons/abilities to choose from round-to-round, but "only" selects which enemies to attack with which weapon. And there has been near-universal clamor for giving all classes more buttons to press to make them more interesting to play. On the other side, there is a train of thought (last expressed by Infinitron, I think in some BG thread or other) that RTwP just "plays different", and relies less on micro-managing every party member and more on just letting them do their thing.
And, based on the IWD2 experience, I'm tempted to think that acceptable RTwP combat can only (even theoretically) exist if a minority of classes is "micro-heavy", while most can work as "micro-light". If you're "playing it wrong" by pausing every round or two in an RTwP game, then does making all classes more "micro-heavy" make it impossible to "play it right" after a point? Of course, different people have different preferences and tolerances, and in 2nd ed era of IE games, you could adjust the "micro-intensity" of your party by using more or less casters etc. - personally, I find playing a 6-caster party tedious (in RTwP games, not turn-based ones!). And again, somewhat ironically, if P:E "fixes" the "boredom" of playing a non-caster by giving all classes lots of buttons to press, won't it make it harder for players to adjust the "micro-intensity" of their party? I mean, if fighters have a choice of active abilities rivaling the wizards (or even just the bards), won't playing them right require choosing the right ability at the right time, like it does with casters? How does such a "micro-heavy" approach work in an RTwP game, without requiring constant pausing, to the point of matching the decision resolution of turn-based games (without the turn scaffolding that makes it possible)? (again, I love "micro-heavy" parties - in turn-based games; too bad this isn't one of them) Perhaps they'll shift the "micro-intensity" slider from class choice to build choice (i.e. each class will have "passive" builds and "active" builds), but if so, I don't think they have mentioned it yet.
But back to IWD2: the game is also hugely annoyified (yes, that's a word) by the proliferation of shitty scripted sequences. Gee, thank you for disabling the UI and pausing the game so I can watch the orc chieftain slowly walk from point A to point B, speak an inane (voiced!) one-liner, than slowly walk away. Unskippable, of course. And then repeat it several times on the same map. Thank you, BG2 engine/influence, for making this cinematic experience possible (and the shitty character models, while we're at it). Yes, IWD1 was also linear, but IWD2 really tries hard to rub the linearity in your face constantly, lest you manage to forget that you're playing the cutting edge of interactive storytelling (in my dungeon crawler). Shitcock.
In conclusion, IWD1 >>>>>>>> IWD2, and they would do well to make Dullsville more like the first one.