Hi SirChet
Yes, there are a lot of difference betweet those two versions. Main difference is all mod dialogs. Although many lines were untouched, others were changed, some were added as well, and heuristic proofreading was made, too. Next changes are concerning about all creature´s battle script - those were improved a lot... and about scripts in general - cutscene scripts, area scripts, and so on...
And last, but definetely not least is the new encounter, that will happen during the later game. It wasn´t present in V2. Just play TOD, and when you finish it, continue in the game normally. Then, suddenly, in the last chapter, a messenger will come to visit you and you won´t have any chance but to agree with what he´ll tell you and follow him to his master... It was intended as a small surprise for players...
Sumarized, if you liked V2, you will definetely like V3 as well. I hope even much more...