I can understand completely why Sierra left it out of their original package of the first 7 games.
The reason why it was left out was because the game was buggy, and wouldn't work in vista. It was very buggy even in XP (still had spots it could lock up). Unlike GOG, the last Vivendi Universal who released the 2006 pack didn't take the time to hex-edit the game to fix installation bugs. GOG on the other hand prides themselves in making games work, and patching things so they will work.
Might still be buggy though.
As for the game it outsold Grim Fandango back in the day, go figure. Not the best KQ game, but eh still have had my fun playing through it a few times. As for the story, actually had alot of potential. Probably has the most epic storyline of the series, after KQ6. Unfortunately the ending is so anti-climactic after all the build-up.
As for that 2006 pack, I have other gripes about it... Lacked the original KQ1 (gog's release lacks the KQ1 remake, go figure). Lacked installer for KQ6 enhanced version (the windows version). It only had 16 bit windows version of KQ7, version 1.4, rather than the 2.0 dos version (so its more buggy, and won't work in windows 64bit versions). My copy also had some rather horrible graphic textbox glitches in KQ2 and KQ6 in the pack. It was just shoddy as hell.