I believe the publisher JoWood at the time forced Piranha Bytes to rush the game, and possibly change it to be simplified as well. There was a legal battle of some sort and that led to them moving to a new publisher (Deep Silver), and the new series name. But I'm told the community patch does wonders.
Details on what exactly is so bad about it can be found here.

Ah, basically they had aspirations for something they could not make under the circumstances. That's unfortunate, a lot of games get that "Gotta make it bigger bigger bigger" disease then find out their engine/whatever cannot handle it.

No I think it was mostly the publisher's fault. That's what it seems like, anyway. If they'd given them enough time and resources, it would've turned out more like Risen I'd guess.
In any case, enjoy the Gothic games. They are true greats.

#3 isn't bad, its just... too big for its own good. The world is huge, with lots of towns, and eventually you're basically going to have to take-over a large portion of those towns, which results in a lot of repetitive and large fights. It's the classic issue of aiming for too big of a world but not being able to fill it with enough content to make it keep your interest for the long term. but before the community patch it was also buggy as hell, afterward its fine.

Kinda sounds like The Elder Scrolls: Daggerfall.

I just wish some modder would improve the load times on Gothic 3. Those load times are horrendous.
Oh, and fix the stuttering issue, too...

As already stated, Risen has many similarities with Gothic but I don't think it "is essentially" a Gothic 4, as it is clearly set in a different world, with different monsters, different conflicts and so on. I do believe however this game might have been supposed to be Gothic 4 at some point of development, as Inquisitor Mendoza has many many similarities with Necromancer Xardas from Gothic, along with other plot similarities.
It's more of a quasi-sequel by the same developer as you said. The combat system, atmosphere, graphics etc. are very similar.
About Gothic 3's issues, I think the only problem was the stupid combat system (a click-fest in which the enemies came to you one at a time, just plain unrealistic too); perhaps the fact that it was too buggy too. The world was much larger, and that was an achievement which I actually wanted Gothic 1, Gothic 2 and Risen to follow. Gothic 3 rewarded extensive exploration, you could go out for hunting deer or wolves for example, travel through snow and desert, it was an amazing huge world. Being so large and rich, it's surprisingly overlooked by the roleplaying community.
That'd sound a lot like Piranha Bytes, fortunately.
The legal battle that led Piranha Bytes to be dropped from developing Gothic 3 (or rushing it out the door and then dropping support) was bad because it spoiled Gothic 3 a little, but then it was fortunate for me who'd like more franchises like Gothic's, and the result is that we already have Risen, and I heard someone's working on Gothic 4.

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On my computer, I didn't encounter many bugs bugs with the community patch. For the most part, Things ran well with the occasional weird things happening. Combat is more challenging due to you having to know went to attack, block, and dodge. Once you get top level armors though, it can be pretty easy to slaughter 30 opponents without healing.

This is precisely what I love about the Gothic games (I have yet to play Risen, I want too badly and you've all steered me clear of the XBox version, thank you, I just gotta get a new PC sometime). You can go anywhere if your clever enough and you can encounter very tough things when your very likely not prepared to survive, but it's a learning process and I love games where you actually have to learn and adapt and survive.
That being said, it is NOT impossible to survive when massively outmatched, say early in the game and you wander into something powerful. My proof is that, out of stubbornness I kept trying to take down an ogre or troll (something big at the start of Gothic 1 or 2) and while I got my ass kicked a lot, with diligence and learning the combat system I WAS able to take it down as a lowly new character. Most games don't let you do that (WoW, its impossible due to the scaling or Oblivion, everything got tougher as you got tougher, stupid) its very rewarding and you knew it had a lot to do with your own skill.
The Gothic games are known to be brutal in a realistic sense, and even when you get tougher in those games, some of the creatures are still dangerous and you have to be on top of your game or you will still die, I love that, a game should be challenging but not impossible or frustrating. While Gothic *could* be frustrating, I found perseverance to be very rewarding.
Play WoW or similar games (which I do like) is effectively going through the motions, but playing and finishing any Gothic game actually feels like an earned accomplishment. It's odd but I love those games, I love tough games that aren't tough due to shitty sadistic design but because they are more realistic.
:)

^ Yeah, I have all three Gothic games w / expansions, but only played Gothic 1 so far. It was very rewarding when I could finally take down a pack of wolves without much trouble :)
It's pretty silly though that you can't just kill an enemy human and loot his armor. The hoops that you have to jump through to get a new piece of armor in that game...!
Also, the first two Fallout games were also open-worlds which didn't have level scaling. Just try taking on some super-mutants or death claws as a level 1!

Dragon Age doesn't scale and is by no means light.

It's great because your character is not a god and they can die from anything just like in real life. I don't think there are many games that are like that. Sure the story may remind you that they are human but the game play doesn't. Gothic series, Metal gear series, Fallout 1+2, sniper elite, Hidden and dangerous series, and hammer and sickle are the only games that I can think of that are like that.

a 480 hours playtime on DA:O and Awakening tell another tale. no scaling ? L O L
each and every monster, human, elf, darkspawn WHATEVER scales to you and your party.
that's why the high dragon is a piece of cake. You trigger him during Ashes quest and can return much later in the game fighting a crippled low-lvl dragon and feel badass.
When you start a quest all the enemies are spawned at or around your level.
there is absolutely no place in the game where you can't own no matter what level you are. In other games at low level you don't even hit the enemy due to low dex, whatever, and are down in 1 second. that's what I am talking about.
Most other games spawn all enemies upon chapter-start, meaning - like in gothic - that you can advance to a certain part of the island, no problem. but everything there kills you if it even looks at you. Risen is another example. There is just nothing like this in DA:O
I liked DA but it's strength surely did NOT lie in its world, history or .... plot ... whatever that was...more like "best of past rpg cliche staples". DA excelled in the party banter and the 4 party combat-pause system. Everything else, design, environments, armor was so mediocre it hurt my eyes.