I think the most probable version of what happened is this.
They sat in internal meetings and said "we would LOVE a game where you can do this, this and this". There's no malice in that, it just passionate ideas for what would make an amazing game experience.
They then started work on it but, crucially, misjudged how much of it was technically achievable. For starters, building a virtually real world sized small city by hand is a completely insane enterprise. The cities in Skyrim have, what, 20 inhabitants by comparison. To then make that city wholly interactable would not only take a decade more work, but would be likely to bring every computer and console grinding to a halt.
They then announced too much of what they were trying to do, too early.
And then they had to start cutting away at the things they simply couldn't do or didn't have time to do.
They have rightly identified that the announcements / marketing were a major misstep and that they can never do that again. That they need to change their marketing approach.
But, effectively, it sounds like they started from the same wishlist as the OP. They just failed to ground their wishlist with hardnosed realism over what it would take to get there and that, realistically, it was not sensible to try to get there.
If one follows the development of Star Citizen and Squadron 42 (SHOCK HORROR, TRIGGER WARNING, RUFFLED FEATHERS) one can study and observe the amount of work that goes into such a dream project.
It's simply monumental, and unachievable by the corporate gaming scene or the market at large, that's why people are throwing money at CIG.
I honestly think that to achieve THE Night City of our dreams CDPR would have stood a better chance going with an open development process and work openly with the community, problem was, the ball was already rolling.
But I still can't believe how much my personal expectations differ from everyone else's, I followed the same hype, I was playing the trailers, songs, gameplay videos etc. on repeat, I was dreaming of roaming Night City, dreaming of what the narrative would be like, and I was pleasantly surprised.
And yes I fully expected euro jank from CDPR, anyone expecting anything else was not paying attention, The Witcher 3 had some of the worst mechanics ever, I apologize, I actually meant all of CDPR's games...