This is mainly about sword & sorcery type of fantasy games. By generic setting, I mean anything that copies D&D Forgotten Realms 1:1. You know, elves are nimble, long lived and good with bows, wizards have long white beards, orcs are evil or at the very least aggressive and violent.
Original settings are more like a Brandon Sanderson novel, where there might be magic but maybe not, we don’t know how it works, or what the society is like. It could be fun to read about in a book, but it requires too much explanation (or exploration) in a computer game.
In games especially, it’s useful to have stereotypes to fall back on. That way the game doesn’t need to spend so much time explaining things, and can go to the more interesting things straight away: Tactical combat (gameplay) or character interaction (story). When you see an orc, or elf, you know what to expect, they’re like shorthand. After all, most of the time in games, a fantasy setting is only an excuse as to why people fight in melee, why there’s mana and spells, in short why there are game mechanics. So there’s really no point in trying to “be creative” by changing up established tropes. (If you want to make an allegory about society, use a sci-fi setting!!)
(feel free to disagree and discuss)
Ah yes, Morrowind! I’d say Arena and Daggerfall felt a lot more generic in how they presented their world. So Morrowind was the third game in the Elder Scrolls series or 5th if you count the two spinoffs. To me, Morrowind feels a good bit different from established fantasy tropes, but it also builds heavily on the prior, more generic games and their established world and mechanics. If you look at the Elder Scrolls series from that point of view, it gradually eased its players into the more exotic setting of Morrowind. I’ll make the claim here that if the previous Elder Scrolls games didn’t exist, Morrowind would have been even more of a hidden gem than it already is.
Yes, Morrowind is a good example of an exotic setting done right. Such simple things like having giant mushrooms for trees are effective at creating a foreign atmosphere without having page long explanations of dark elf gods and rituals (even if these can be found in the game as well)