I've heard several stories about the development of that game (and stuff in the office before). One of them was that they worked in that glass building in Dallas, Texas. Well, anyone that knows anything about Texas knows that during the summer months, the devil himself could vacation here and feel right at home...yeah, it's HOTTER THAN HELL. Anywho, it was so bright and hot in the building because of the glass, that most of the ppl had stuff draped over the tops of their cubicles in order to block out the sun (then again, it's not like most programmer are known for their sun loving ways).
Another one I remember reading somewhere was the 1300 pixel arrow. Romero was one that believe in letting creators create, i.e. few limitations. Unfortunately, in game development there is really a need for some type of structure in order for the different parts of a game being developed to be able to come together and actually work. So, one artist was tasked with creating an arrow sprite (a graphic to be used in the game to represent an arrow shot at someone in the game). Since the artist was given no guidelines as to how or what size/quality to make the arrow, he decided to make the best looking arrow he could. He turned in an image of an arrow to be used for the sprite that was 1300 pixels long! Keep in mind when Daikatana came out and what resolution most ppl were using on their games/monitors at the time (yeah, the arrow was FRIGGIN HUGE, as in WAY to big to be used in the game). Needless to say, there went a few of Eidos's dollars down the drain.
When Ion Storm Dallas shut down, some of their stuff (and ppl if I remember correctly) came here to Austin (Ion Storm Austin, creators of Deus Ex). Well, apparantly they were doing some house cleaning at one time because the local Goodwill thrift stores had TONS of copies of Daikatana on their shelves for a while (and yes, even at Goodwill prices they just SAT there...lol).
