Didn't Morrowind modded have this feature or am I misremembering?
Escape from Butcher Bay. Dark Athena as well probably, but it's shit so it doesn't matter.
Does anyone know why this is such a rare feature? Any technical reasons?
I'd wager its because the body gets in the way of looking down.
Usually the body is set back by 20-30 centimeters in a sort of fake way to allow looking below. Which will cause problems in tight spaces, cause your body may find itself in the air, outside a cart or sticking through a wall.
The main reason it's usually not done is cause having your own body means you'll need to cast your own shadow, and then not only do you need legs to cast shadow, but also the upper body that you're not rendering. And all of a sudden, you need to take care of animating your upper body, weapons, etc, and they all should cast shadow. It's a lot of pain in the ass for nothing. And then it will affect how you handle collision, so there's that to take care of. And then it makes sense for arrows to keep sticking in your body. But then they sometimes stick in weird places that you can't see shit. And then you deal with
that through some chicanery. And then it makes sense to display blood on your body, and it never fucking ends...
I worked on a project where the director insisted on doing all that, and I told him it's not worth it, but of course they always Know Better.