This is a hilarious controversy to me because it is so obviously a labor dispute but nobody is covering it that way.
If you work as a creative and your product doesn't sell because you were forced to cut corners by your boss you should be mad at your boss not your audience.
It's simple really. BioWare was hard at work on Mass Effect at the time and wanted to create more original IPs overall. From what I remember, they were the ones who recommended Obsidian to Atari. What's interesting to me is how NwN2 ended up shaping not only Obsidian, but our general perception of the studio.
First, NwN2 came out during that dark age I mentioned, close to the height of the computer RPG dryspell of the 2000s. Standards were low, not only in terms of overall creativity but also on the technical side. Games like Bloodlines, Arcanum, and so on would all become cult classics even though some were brokenly unplayable or outright unfinished. Even so NwN2's development was a disaster. The first lead did a terrible job, and it was Josh Sawyer who got the game out of the door. It was in a barely shippable state and it showed. Taking NwN1 with all the strengths and limitations it had, and turning it into a party based RPG was not a good idea.
That said, the lead writer (George Ziets) and the lead designer (Josh Sawyer), as well as the studio as a whole, were all young enough that they were willing to try something new with the expansions. Mask of the Betrayer kinda redeemed the NwN2 release. Whereas before people would say 'at least the NwN2 Original Campaign's trial scene was cool' (good lord), now they could say that MotB was worth a playthrough all of it's own (and it was). The spirit meter and the plot combined to tell a very compelling story. MotB, together with Avellone's writing in Kotor created the image of Obsidian Entertainment as the bottomfeeder studio willing to do mercenary work for BioWare and Bethesda, but capable of adding compelling twists and turns of their own. Obsidian had become synonymous with subversion in the minds of many. Sawyer grew in confidence within the studio, and Avellone's fame outgrew retroactively from his stint in Planescape Torment. However it was an illusion, and it did not describe the team as a whole.
If BioWare's pitfall was believing they had to diversify from 'rpg nerds' towards 'fratbros who buy Xboxes' (both caricatures), there was perhaps no studio head who believed that false dichotomy more than Feargus Urquhart, the Obsidian head. The man always dreamt of making a Skyrim killer. Obsidian was lead for that end. When they made Pillars of Eternity, Obsidian created a beautiful, competently played game that nonetheless played it extremely safe. It tried to be a little bit of BG1, a little bit of Icewind Dale, a little bit of BG2 and it overall lacked in spice with it's delivery. When Obsidian made Tyranny, they had a real gem in their hands, but (allegedly) diverted funds from it towards the making of Pillars 2. When they made Pillars 2 they overcorrected from the subdued nature of Pillars 1's story, and failed to market the game properly, underestimating the effect that Pillars 1 had on their fanbase, as well as believing that Critical Role alone would sell millions of copies. None of it mattered though, because Feargus still got to sell his studio to Microsoft, which then greenlit funds to make his open world game. Except he never built a team towards that end. Obsidian had made New Vegas using Bethesda's tech and assets. Then they made The Outer Worlds, which was a commercial success, but quite underwhelming overall. Now they are making Avowed, which seems to have been scaled back hard towards something on the scale of Outer Worlds rather than Skyrim.
'Wide as an ocean, deep as a puddle', people will say of Elder Scrolls and Bethesda games in general. Turns out digging an ocean wide puddle is still a ton of work. It requires a team, it requires patience, and eyes on the ball. Obsidian ended up no different from BioWare, chasing trends and imagined audiences rather than focusing on their core strengths. Ultimately story leads ended up quitting the studio, and those who didn't, like Sawyer, ended up exhausted and risk averse. This means the new blood would join a studio with a fame for cool stories and subversions of mainline settings, only to end up directionless and working for Urquhart's cashout boutique.