Despite having posted two incorrect answers so far, I am now pretty sure that this is a game called The Search for Freedom (released in 1995 according to that link, or 1996 according to Mobygames, or 1994 according to the Internet Archive.)
This is the game's website. Because it's hosted at the mocagh DOT org (Museum of Computer Adventure Game History) domain, I had thought it was an archived copy of the site. But according to CRPG Addict, the Museum's owner, Howard Feldman, created this game when he was in high school!
The dosgames site linked to above states that it was shareware, and has a link to download it. Downloading the .zip file, I opened MANUAL.TXT to take a look, and I'll be quoting from that extensively during this answer.
First of all, the in-game graphics. You stated:
As you walked around, the setting was shown in (first-person) perspective view, but it switched to an overhead tactical view when entering combat. I was not impressed with the graphics, particular in the exploration mode. The walls were textureless solid colors (maybe that color being purple inside the dungeon), at a time when lots of games had already done a lot better.
From MANUAL.TXT:
The Search for Freedom uses two points of view: first person, and
bird's eye.
FIRST PERSON VIEW
When in dungeons or towns, you see a 3-D first person view of the
surrounding area in the upper left view-box. To the right appear
the names, HP, and spell points of all your characters. Below
this appears the day, time, and icons representing any spells
currently affecting the party. The lower box in a message
window, and any information you must read will appear here. At
the very bottom will appear the main adventuring menu, from which
you make all your decisions about what to do next, described in
detail later on, by using the left and right arrow keys.
Here are some screenshots of the first-person dungeon perspective:

And the "birds-eye" (i.e. top-down) combat perspective:

Next up, you stated:
The game promoted itself as a must-have for fans of The Bard's Tale series
The mocagh.org page contains a copy of the game's advert, which begins:
A must-have for die-hard fans of the Bard's Tale and Ultima RPGs --
That said, the advert has clearly been altered to refer to a later modification of the game (v1.3, with a 2004 release date). So it's possible that wording may not have been in the advert you saw.
MANUAL.TXT also mentions Bard's Tale, and confirms that the game is shareware:
inspired by such RPGs as Pool of Radiance by SSI, Shard
of Spring by SSI, and Bard's Tale by Electronic Arts.
This game is Shareware, it is not Public Domain. You
may try the game, up to the end of the first dungeon, and then
you must register it to play the remainder of the game. ... The original, unregistered installation .ZIP file may be copied
and distributed freely.
The reference to "up to the end of the first dungeon" matches your saying:
I only played the free version with one town and one dungeon; there was supposed to be a paid version with the whole game
As well as MANUAL.TXT, the download also contained REGINFO.TXT, which matches it even more closely:
You will be allowed to complete the
first town and the first dungeon, and then you will be
required to register
Now, let's take a look at another detail. You said:
I believe that for its diminutive race of demi-humans, the game followed the early Ultima games and called them "bobbits." (I don't remember whether it actually came out before or after John Bobbitt's severed penis hit the news in June 1993.) I think the bobbits were portrayed as teddy-bear-like humanoids — short and brown furred, with large round ears.
They're not called bobbits... but from the description I think this is them:
Teddy - small, adorable creatures who won't think twice about
swiping money or other possessions from under your nose. They
are very fast, and are often charming conversationalists as well.
They may be Thieves or Mages.
There are pictures of them on the mocagh website... but after seeing those pictures, I really, really don't want to paste them in here. Follow the link if you're curious.
You said:
completing the game's main quest had a hard time limit of one thousand in-game days. The idea was that budgeting your in-game time was supposed to be crucial, and it would not be possible to overpower the game simply by grinding characters up to very high levels.
From the manual:
Unlike some RPGs, in Search for Freedom, there is a time limit of
1000 days. You will learn more about this when you read the
introductory story after you've created your characters, but
suffice it to say for now that you cannot waste too much time
resting and must learn to conserve your magic powers and only use
them when you must.
Now for another of your main points. You stated:
The documentation for the game stated that the game world had two pieces—the top and bottom of a flat world. This was likely inspired by Might and Magic IV and V (as the latter game, Darkside of Xeen, was released in 1993). However, unlike the Might and Magic games, in this game, the decision to descend to the underside of the world, once the main quest elements on the upper surface had been finished, was irrevocable.
From the manual:
The known world consists of 3 continents, surrounding the dreaded
Isle of No Return. ... This Isle, in the centre of the world, is completely covered by the Nameless Mountains, and none that have visited the isle to
date, have returned, hence the name.
...
Aegea
It is rumoured that, since the world is flat, like a playing
card, then there must be something on the other side of the
"card" we know as Earth, and this land has been called Aegea, or
sometimes just "The Other Side". It is believed that if you sail
in the ocean to the edge of the world, you will fall off, and
land on The Other Side. However, no boat has been built yet that
can withstand the powerful waters when one approaches the edge of
the world, so the theory cannot be tested (not that anyone would
be foolish enough to test it anyways). It is also believed that
when you die, and are buried, your soul goes through the ground,
to The Other Side, and so it has also been called the Land of the
Dead. Whether Aegea exists or not is pure speculation, although
the name has come up in legends before.
So it sounds like you have to visit this Isle of No Return, and as if there's a way to reach Aegea somewhere on that island.
Another point now. You stated:
- In the early part of the game I played, I recall there was a library in the town, where my party could stop to study for some number of in-game days (one or three days, I think); this would improve characters' magical skills at the cost of precious time.*
It's not actually a library, but the Magic Store is a pretty close match:
Magic Store
Perhaps the shop you will visit most often, this store offers the
widest variety of services. Use the up/down arrow keys to decide
who will buy what:
...
Spellbooks - if the selected character is a mage, who is ready to
learn a new spell level, you may purchase the spellbook for the
new level here. Then, by resting in camp for half a day per
spell level for the level you wish to learn, you will learn all
the spells of that level, permanently. Without the spellbook,
you cannot learn the new spells, regardless of whether or not you
are ready to. All starting mages are able to buy the Level 1
spellbook immediately, provided they have sufficient funds of
course.
(I added the above italics, to emphasize the fact that learning spells consumes in-game time.)
Several files in the dosgames.com download are text files in some kind of cipher, and it doesn't appear to be ROT13. I suspect capital letters are either enciphered differently to lower-case letters, or not at all. I also suspect that numbers, spaces and punctuation are not enciphered.
Ihdy fz Nf Rannbc
in that cipher is probably
Isle of No Return
.
although if it is, note that the ciphertext 'n' representing both 't' and 'u' in succession implies that this isn't a simple substitution cipher. Or that there was a typo.
Likewise,
1000 qqyh!
is probably
1000 days!
.
And the game's creator even seems to have enciphered the registration instructions!
xn paqgn $09
is probably
at least $10
and
Be., Jlpdfjexpa, Rcnxblf, RXDXEX
would have been
Rd., Willowdale, Ontario, CANADA
.
Files of this sort include AASTORY, WRIT, COOKIE and several others. There are none of these enciphered files in the mocagh version of the download (v1.3), or in the Internet Archive versions (v1.2 and 1.3). They are only in the dosgames version. If you can find a decipherment of the text in them, I would be interested in seeing it. If you can work out the encipherment/decipherment algorithm, I would be very interested!
EDIT: I've been doing a bit of code-cracking by hand - here is a partial decryption guide for the cipher, or at least the lower-case letters. I think some files encipher the upper-case ones and some don't:
CIPHER a b c d e f g h i j k l m n o p q r s t u v w x y z
PLAIN e r n l d o s s g w h i v? u h l a d o r p? a a f
w t m? n m u j? t i g d o y e
c? y
Here are a couple of partial decryptions from the AASTORY file:
Iz bklh bncrjt lh ntja, noy vrbbqd jodp ffyc ld 1000 qqyh! Iz oy og
If this rumour is true, the portal will open in 1000 days! If he is
cfb qygntfyyq syzfty bkad, bka jftpq lh erfeyq!
not destroyed before then, the world is doomed!
Rncrjt xpgf kxh ob bkxn eayf ld q endpyrd fc bka Ihdy fz Nf Rannbc lh
Rumour also has it that deep in a dungeon on the Isle of No Return is
q cxilrxp vrbbqd, fcy-axs, dyxeldp bf Aaiaq.
a magical portal, one-way, leading to Aegea.
Incidentally, the mocagh site states that the game had a prequel, Quest of Kings. (CRPG Addict, Gamebase64). There's an in-game screenshot of that which shows first-person perspective and purple walls:

But that game was C64, not PC/DOS.
CRPG Addict has played Quest of Kings, and mentions that he looks forward to playing The Search for Freedom when he eventually gets up to games from that year.