What's surprising to me is that if you compare the 2004 and 2014 Highlanders, the new one is priced barely above the ten year old one (when new, of course) but in so many ways offers so much more.
I don't need the extra room of the Gen III over the Gen I, but I know that all the players in the segment have grown and so the HL must to be competitive.
The interior is much nicer than the Gen II. Toyota paid a lot of attention to upscale (not luxury level, but nice) materials in the Gen I, but cost pressures changed that in the second generation. I think by keeping some parts (like the engine, etc) from the previous model it freed up the budget to jazz up the interior. And why change for the sake of it? The "old" 3.5L is a very nice engine that has great power delivery and still top notch fuel economy.