You do know that for the time those graphics were state of the art. In fact the Atari 8-bit machine which Alternate Reality started on allowed for 256 colors on screen. The sound chips in both the Atari and C64 ( Pokey and SID respectively) were ahead of their times.
The problem I have with newer games is that instead of improving on those mechanics with the additions you state developers simply abandon them which for some gamers began the dumbing down of crpgs.
That is because, a lot of players feel that many of these mechanics are annoying. Like yourself, NPC going to sleep and closing their shop at night. You claim that it is annoying while acknowledging that it is more realistic. You then say that it is better to totally abandon said mechanics if it is just for atmosphere. You then say that you dont care for such mechanics if it is not implemented to the extend that it impacts a great many aspect of the game. See the contradiction?
Thus, what you are basically saying is - I like this mechanics so it should be preserved and expanded upon, why do developers abandon them? I dont care for this mechanics, why put it in?
I use to code and develop MUD when in college - a text base online game that basically allows us to code features that graphical games even today cannot match in terms of mechanics and features because of how easy it was for us to rely information to the players because everything is in text. We tried to make the MUD more realistic by adding dynamic behavior to NPCs and to more realistically show the impact of weather - example A mage cast blizzard - screw up weather - bad harvest - shop prices goes up. Dont eat and sleep, lose constitution and gain less HP when level up. Kill monsters for extended period of time causes fatigue and hence not learning anything (lower XP gain). Guess what? Only a small faction of players likes them and even them together with most of the other players feel that it is too complicated that the game is no longer enjoyable.
So the reason for not continuing certain game mechanics of old is:
1) They are cool only in concept but most players find them too annoying.
2) It is very expensive/hard to present them graphically.
3) The majority of players do not care for them or find them annoying.
A simple day/night cycle and dynamic weather system with no added mechanics attached provides players with at least atmosphere while not taking away anything from the game. NPC with daily schedule, yeah, some will find them annoying, others will like them. As long as the majority likes them and dont find it annoying, it is good to have. Have to eat and sleep and rest accordingly to level up properly? Well, most players find them too annoying while only few find them nice. Drop it.