Actually, I would only be questioning Larian's competence at proper storytelling if the Dragon Knight HAD killed Damian.
Damian's entire existence, and the reason for his fall was because of Lucian. Damian is the responsibility of Lucian. Since Lucian turned out to be alive, he was the one who needs to kill Damian, to atone for his mistake born out of love and hope. Also, since Damian is fueled by the soul of an evil god, it makes sense for Lucian to be the one to kill him, because he is also fuelled with the soul of seven gods.
While Damian is the big bad of the franchise, there is no personal connection between Damian and the Dragon Knight that really gives the player emotional investment. He shows up a few times, sends a few easily defeatable goons after you, then runs off.
As soon as I heard about the expansion coming, I knew that the final boss could only be Ygerna. Ygerna had spent the majorioty of the game talking to the Dragon Knight, the player, guiding him to the goal, and then she betrayed him. That's a personal connection, that's where the emotional investment for the player of the game came from.
Would it have been great if there was more gameplay besides Aleroth? Of course. But you do have to understand that there are limitations of time and money, especially for a studio like Larian.
