First, keep in mind that Gothic 3 isn't a horrible game by any means. Just not nearly as great as it's predecessors. So what makes it fall short of the previous games greatness? Well...here goes...
First, the world feels to "stretched thin", for lack of a better word. Both G1 & 2 only featured a couple of towns set amongst a rather smallish countryside. I don't consider that a bad thing, considering that both those games had far more detailed and believable worlds because they had such tight focus. With G3, Piranha Bytes figured they could keep the same level of detail in all their towns and surroundings, but expand the game world to Oblivion proportions..and...eh...they didn't quite succeed. The NPCs in most of the cities felt one dimensional in comparison to G1 & 2, and the countryside worked more as a pretty backdrop than an interesting place to explore.
That isn't saying the game is devoid of any of the magic that made the previous Gothics so much fun. It's still there, but more as an occasional thing that a constant companion.
Beyond that, you got the combat. This is the one thing I can say sucks the most about the game. The neat left swing/right swing/lunge/block system is gone, replaced by this CLICK THE MOUSE AS FAST AS YOU CAN HIT IT HIT IT HIT IT DIE EVERYTHING DIE setup that makes the game way, way, way too easy. I mean seriously, you can beat the everliving hell out of every human opponent in the game at level 1. No challenge whatsoever (boars withstanding). For those of us that actually preferred the get kicked in the dick difficulty of the first two games, this was practically a deal breaker.
Then you've got what they did with Lee. That's some tragedy right there. And not the good greek play poetic tragedy here, rather the "what the hell were they thinking" kind.
So in closing, it isn't like Piranha Bytes woke up one day and decided to suck, but I would say that PB stretched themselves too thin on such an ambitious project, and the whole game suffered for it. Still, despite the flaws and my big complaints, G3 is a goodish game when it comes down to it, and worth getting if you're short on other RPGs to play in the meantime.