Yes, that's a very good way to integrate the additional dungeons into the game!
Specially such storys, telled on a cosy fire, increases the grade of authenticity of the game and help the player to fit in (you remember Monkey Island 2?). The adventurous contents are the ones, which awake the players wish to be a part of the story and it is this kind of stuff which makes me curious to play the game and stay playing it.
NPCs who interact like in real live, who know relatives, who lives far away and have heard of you, when you arrive there at last. They have their own storys of live (like George in DD) and they have their special relations to the other people of their village/city. It's all so very near, small and familiar although the world of DD is huge. In my eyes it's that which makes DD so special.
But short back to the Graphics:
For me it's other way round. When they're doing it in first person view only, it's dead for me.
I need the overview of a iso-perspective and love to see the hero inside the landscape like in a diorama.
First person view makes me some kind of nervous and initiates the fear, that I don't see all of the great environment the larians devloped.
Next thing ist, that the first person view requires the usage of the arrow keys to move, which ist a real torture, as I mentioned in another thread before.
What do you think about the arrow keys in matters of move control?
