It is weirdly ugly, in that it has this very washed-out and limited palette (seemingly an artistic decision, as occasionally it doesn’t), drastic redesigns of a lot DA stuff, and really limited scenery, especially at the start, which features you fighting dull-coloured enemies on an grey-brown treeless plain, then going to a red-grey city, and hanging around some particularly colourless parts of it.
However the look does kind of grow on you - or it did on me - and as you say, DA:O’s “What if we took LotR but made it way uglier!?” approach isn’t much to write home about. Took until DA:I to finally get it mostly right, as sort of synthesis of the two, together with, er, actual colours.
The combat is unplayably bad on consoles, so hopefully don’t play it there. On PC it’s actually quite similar to DA:O but a lot more balanced, in the sense that one mage is no longer more powerful than an entire group of four non-mage characters, but rather slightly better than any given one other character, but still needs them around. It also has a proper AI-programming system for the characters, like DA:O, except it makes more sense and works better, but you are strangely unlikely to come across it unless you’re looking.
The story being good is the product of three factors:
Rejecting the traditional idea that a CRPG must be about you roaming the wilds, picking up strange new companions, and visiting fantastical places, perhaps whilst traveling most of a continent or more. Instead they tightly focus on a single city and it’s environs.
Getting rid of the old “Morrigan disapproves” leading to “Morrigan leaves” or “Morrigan fails to get powered up” stuff. Your companions are bound to your story by stuff that’s stronger than just being “friends” which was often implausible given what massive dicks a lot of the characters in these games are anyway. So, they don’t leave, and both them loving you or being frustrated with you give you benefits (not sure if it in-between does but still, they’re quite likely to end up at one end or another). This means you can have more complex relationships with companions without metagame shit like “Oh gotta keep this dude sweet because I don’t have an alternative healer!!!”. This means more tumultuous and entertaining relationships could be written.
The limits of time and budget leading to a lot of stuff being cut or cut down. Now, as a 21st century person, familiar with Snyder Cuts and similar shenanigans, you may be thinking “But cuts are never good! ARTISTIC VISION!!!”, but not so my friend! Limitations and necessity have produced or helped more art than they’ve harmed, I’d suggest.
And this is the case with DA2’s story. In a typical CRPG of this style (and ME2 is a good example), you’d have been able to basically avert every single crisis (ME2 has only one you cannot, that I can think of), and just generally be a one-hundred-percent successful hero. Anywhere you can’t is usually some particularly grandiose plan from a grandiose villain.
But DA2 doesn’t let you succeed at everything. Sometimes things are just fucked. And that’s part of the how it benefits artistically, because they knew enough that, if they were going to keep only one path of two or three, they kept the one which was most emotionally effective - generally which was most emotionally wrenching.
Towards the very end of the game this falls apart a bit but generally the game works really well because there’s a lot of the kind of tragedy that happens in the better class of fantasy novel, but which computer games generally let you ward off.