Irenicus did nothing wrong
It worked in DAoC for a few reasons. It was the first time it'd be done, so it was new, the factions were very diverse, thematically, which created a real sense of loyalty back when nobody knew what a 'server transfer' was (even right up to the end when people had characters from all three realms on one server, most people still associated themselves with and felt an affinity for one particular faction*), the whole game was built and marketed around it, and there was no serious endgame PvE raidgame, so there were no concerns about artificially limiting potential group/raid recruits.Wasn't DaoC 3 hard factions as well? I can't say that I remember hearing much hate for it from the DaoC players, but it's been a long time so who knows.
I didn't play for long (and it was well after DaoC's heyday) but I vaguely remember wanting to start one of the "tank" races to play with a friend and I couldn't because that was only available to a single opposing faction.
*Hibernia 4 lyfe!
As for whether it'll work in ESO, that depends on implementation, it can be a good or bad system depending on the context. Personally, I just think it's a bit silly to talk so much about how they're making it easier to play with your friends in a game with hard factions. They can't have their cake and eat it too with the current system (although GW2 managed it, eventually).