I think the visual effects would be easier to make. A functional day and night cycle for towns folk (and maybe enemies and wildlife) would consume more time: How would it effect quests, encounters and mechanics ? Can you steal thinks easier at night from sleeping npcs, from drunk npcs? Can you get quests from people sleeping in their bed or will they call the guards an in Skyrim? (Are there even enough beds for all the npcs?) How are they moving during the day? Can you influence the weather with spells?

Don't get me wrong I really would like it and I think it would improve the game (better immersion, more ways to solve quests).