HAL,
I actually played TSL with TSLRC 1.8.4 and another number of modifications (see here). As I said, the plot is intriguing and somewhat engrossing but truth to be told, to me it was 95% Kreia's merit (I know I and Eauxps disagree here :_P ). The interaction with other party members and between party members a great improvement over KotOR, no doubt. But practically, for everything else, I still find the first game the superior one. Plot wise, it is less deep but equally captivating and less convoluted. But what truly makes the scale shifts towards KotOR is that I never (except the very last segment of the game and not even entirely) really got bored playing it. When playing TSL, I spent one third of the whole game wishing I could fast forward to the next "event".
The fact that the game tries and gives you a "reason" for the endless combat does not do much to alleviate the problem. It does not become any less boring and derivative. It is way better than infinite spawning though...
Also I don't think it is unfair to not mention the conditions under which the game was developed/released. It is not something that concerns the end user. I can sympathize with the developers but that's all...