An Entire province explodes, land mass changes, the entire population seems to die and be replaced by alternate versions of themselves.... And no one seems to care.

Is Daggerfall a throw away game lore wise? The events of the previous/first game, Arena are mentioned a bit in Oblivion, and Jagar Tharns name is still of importance.

Because the 'everyone' you have after the event are the alternate versions who don't exactly know much about the "originals"?

Because some genius thought he could fix the issue of having to pick a canon ending by picking all of them, so it's extremely poorly written. That's why.