I recently watched DansGaming play through this last Halloween. Was interesting to finally see what all the hype was about as everyone had asked for it every year. As a fan of point-and-click games, it was interesting to see something in FMV and what they did with scenes to blend the real and video game aspects. Story-wise it felt a lot more coherent and suspenseful compared to Harvester, but didn't quite blow me away either. That might be too harsh, the music and set work obviously was done well, perhaps after nearly 30 years of other video game media the storyline just felt a little, expected.
I suggest you read the Wikipedia article about it, Sierra really went all out on Phantasmagoria. It was budgeted at 800k, but eventually cost $4.5 million, with the custom built studio solely dedicated to filming it weighing in at $1.5 million - thats quite something, considering we're talking 90s money here. Again, dev costs for AAA titles today are a completely different beast, but as you said, video games have come a long way since then.
I watched a (much longer) complete walkthrough sometime last year when I was down with the flu or whatever and I have to say, re-watching it is a bit more fun than re-playing it, the pacing was quite a bit off.
Roberta Williams is a good enough writer when it comes to early adventure games (I do love King's Quest), but this was her first horror project, her script was maybe overly long and the project too ambitious in places, and yeah, the complexity of plot lines probably have grown along with the expectations and the maturity of the audience.
It's still a great project and a major milestone as far as FMV games are concerned, a genre I somewhat miss overall. The mixture of animation and real footage using 90s technology has just the right amount of schlock/cheesiness to be highly entertaining.
I was a sucker for FMV games on the PC. There was the X-Files FMV adventure game, that was six CDs. So was Ripper, another adventure game that starred Christopher Walken, Karen Allen, John Rhys Davies and many more.
I also had Star Trek: Klingon, Star Trek: Borg and a thriller about a nuclear submarine called Silent Steel.