Bethesda isn't a single entity with an idea. It's comprised of individual people who are all sharing ideas, and of those people, there's a constant flow of people coming and going. The people at Bethesda now aren't the same as they were during Daggerfall, or even Morrowind. Some select few people may remain, but not necessarily in the same capacity, and new people will have joined in while others have left.
The lack of beast race NPCs in Daggerfall was purely a technical one. As it is, the humanoid NPCs can barely be told apart by race, there's only a small handful of elvish NPCs, and the enemy NPCs have no differentiation between races. It'd have required making a whole slew of new sprites for them, for a game that was already stretched way too thin when it came to features. But the game data does have texts for beast race NPCs, including name fragments (which would pieced together procedurally to generate full names), and various exclamations, so it was at least planned to have them as NPCs.
Battlespire took out a lot of what made TES, so the lack of beast races was par for the course. That game felt like Julian taking the feedback of 'too many half-assed, broken, and incomplete features' to heart and cutting out everything that wasn't essential to what he wanted to make. Morrowind was heavily strapped for time, needing a number of time and budget extensions along with scaling back features. But the fan response to no playable beast races got them to change that particular decision even though they couldn't put in too much work to integrate them in "properly" as a playable race. Since then, there hasn't been any visible effort to remove or downplay them in the lore or the games. If anything, they've been given more consideration than previously and are given the same treatment the other races are. In Morrowind, their presence as a playable race makes them feel a bit out of place as you have the Dunmer talking about them as if they're only tolerated and used as slaves, while you can find "random" beast race NPCs roaming freely and with little suspicion. And of course the armor situation where they're left to languish without boots or helms regardless of what it would do to difficulty or balance. But with Oblivion, the beast races were given equal consideration and fit in just as well as any other race, and play just as well too. Oblivion even added a new system of deforming headgear so they could fit the beast races.
I still don't even know what "the fall of man to mer" is supposed to mean. Not all mannish races work together, and neither do the elvish races. You have the Dunmer and Orcs who will happily fight against the Altmer, with humans if needs be, and the Bosmer who aren't too happy with them either (sentiments I'm sure the Altmer share back), while the Bretons and Redguards don't exactly get along with the Nords all that well either. So what is "the fall of man to mer" supposed to mean, "the fall of Imperials/Nords to Altmer"? And if so how exactly does Morrowind play into that story? Because I gotta say, the Dunmer feel just as important in that regard as the Argonians and Khajiit do.
Well, Lachdonin is right in that "Lilmothiit" basically means ""one from Lilmoth" in Ta'agra. So the place must of have existed with that name when the Lilmothiit were given their name, and with them having some intrinsic connection to it. How they had such a connection to a place in Black Marsh while sharing a language with the Khajiit of Elsweyr, I have no clue. The Bosmer don't even share their language, despite having clearer ties to them. The novels visit Lilmoth with it under the control of the An-Xileel, but AFAIK there's no mention of anything relating to the Lilmothiit.