The probability of this turning Arena into a good game is lower than the probability of Daggerfall be even more improved with new mods.
It only needs three key things to be superb:
1. Change how enemy spawns work. This should be trivial. Remove the one-monster-type-at-a-time system allowing for mixed enemy mobs, populate dungeons by hand with consistent enemies who don't disappear/reappear as the player moves around.
2. Hand-placed special loot around the dungeons, to encourage hunting for secrets and such. This could also take the form of flavour text (Arena already has this in a very minor way, like the special vampire mausoleum in, iirc, Crypt of Hearts). This, again, should be trivial for modders to do.
3. Come up with some way to negate the extraordinary power of Spell Reflection. This is harder to deal with, and I can't immediately think of a way around it, but mixed enemy mobs will help - instead of just having a bunch of spellcasters show up to commit suicide, they'll be forming a rear line while the player is rushed by melee enemies, which at the very least will require the player to do more than stand still to win.
That will turn the game from a diamond in the rough to a genuinely great dungeon crawler. From there, modders should be able to do all kinds of extra things - new graphics to make each province's cities feel different, stuff like that. There could even be modular adventures for each city, as Bethesda originally planned (the flavour text when you enter Mournhold still hints at this expansion pack that was never made). It could easily become my second favourite TES game after Daggerfall if all this gets added, and if the modding scene for this ends up even a fraction as creative as DFU's, it's going to happen.
