I think the best way to do a realistically large region - as in thousands of square miles - is like this:
1) Build very detailed hand crafted zones - lets call them "Free Roam Areas" or FRAs. For Skyrim each of these FRAs can simply be one of the Holds at its current un-modified scale. These FRAs could still be quite large, up to few square miles.
2) When a character gets to the border of a FRA, procedural rendering would take over. Gigantic -yes, as in thousands of square miles- swaths of land would simply be generated randomly, but could still adhere to a specified topography. That is, the locations of mountains, rivers, lakes, vilages, etc. and the type of terrain (forest, tundra, snow, etc.) would be specified... however the placement of rocks, trees, logs, plants, animals, and monsters would be generated at random. This would allow the player to kiss civilization goodbye and explore the wilderness basically forever if they want to.
3) The detailed FRAs or Holds would literally be separated by hundreds of miles, and not everyone wants to spend 70 hours of playing just getting to the next city, so a fast travel system would be a must. But this would be a beefed up version of fast travel. More like an Elder Scrolls version of Oregon Trail, with chance encounters with enemies, traders, NPCs, and randomly placed dungeons. Fast travel would typically pass in days or weeks depending on the destination.
You, sir, have just described the game I've dreamed about for years. Sadly, this isn't possible for Skyrim. I don't know much about coding but I do know we can't modify the source code, which would be necessary for this. But, maybe someday...
For now, we'll have to contend with discussing Skyrim x2, which sounds pretty awesome. When it comes to the 7,000 steps, would those even need to be re-arranged? Obviously the mountain itself would have to be changed some to fit High Hrothgar and such, but the steps would be fine provided the player could still walk them.
My one fear, if this actually were to happen, is that someone would make something lore breaking and huge, like the Dark Forest in Unique Landscapes, and it'd get popular enough that nobody else would put something lore-friendly there. Don't get me wrong when I say that, though, it was a cool addition, it just didn't belong in Cyrodiil. The one thing this would help is if there were a Unique Landscapes type thing made around this, it wouldn't have the main problems I have with UL, overcrowding being the first. The second is, if everything is some amazing marvel to look at, then nothing is really interesting. There's something to love about a simple field.
And at least the mountain flowers look nice and blend in, unlike the flax some of the UL modders liked to spam everywhere in ridiculous amounts.