Daikatana failed because it sucked, and was three years late.
Romero's skills were GROSSLY oversold
The game was GROSSLY overhyped.
And they burned through an obscene amount of money trying to be a "rockstar" studio (spending lavishly on facilities and trinkets, rather than putting the money where it belonged, in the game.
On top of that, the studio couldn't deliver titles on time to save their lives and was basically had all the makings of a terrible reality TV show with constant infighting, turmoil, etc, etc.
Basically the only thing Ion Storm did RIGHT was to found their Austin office (which kept its nose clean of all the bullshit coming and going from the main Dallas office). Ion Storm Austin actually gained a rep for producing solid work.