I know I'm going to get flak for this, but I find Daxter's character arc post-TPL to be a tad underwhelming. The entire premise of the first game is trying to find a way to turn Daxter back into a human again. That's literally the entire reason Jak and Daxter even set off on their first quest, even if it does later turn into a save the world plot involving Gol and Maia.
But in the sequels, Daxter just more or less doesn't care about being an ottsel anymore. He just seems to have quietly accepted it, given he names the bar "the Naughty Ottsel" at the end of Jak II and then chooses to have pants instead of turning human again at the end of Jak 3.
But I personally find this somewhat underwhelming. I know he told Keira that "good things come in small packages" and this is enough for most people, but to me, that never sounded like genuine acceptance. Daxter's flirts with Keira in the first game, and his wisecracks always came off defensive to me. Like something an awkward teenage boy that is already hated by the village would do, if he found himself turned into a small fuzzy animal. I don't think Dax had fully accepted his transformation by the end of 1, he just accepted defeating Gol and Maia was more important than being human again.
After this, other than a mention of missing pants and saying if not for Jak he'd still be human, Daxter never really mentions being human, which is odd to me. The two year time skip may have played a part in that, but this isn't addressed in the PSP either.
It's been pointed out by a lot of fans that Daxter may have become somewhat reliant on his ottsel form, due to being able to hide behind Jak in a less cowardly way, as well as because Tess fell for him as an ottsel, meaning there'd be no guarantees she'd love him as a human.
Just imagine that though. Imagine we'd gotten an actual arc where Daxter still missed being human but set that aside once again for the greater good (freeing Jak and stopping Praxis) and then finally turned human again in 2 or 3, only to realize he loved being an ottsel because it brought him closer to Jak and Tess. So he makes the active decision to go back to being an ottsel again and Tess becomes an ottsel with him (after she already expresses love for him as a human).
That way, they could've kept the arc of Daxter's insecurity, and done a proper story of him learning to love his new form. It's sort of done in the actual trilogy, with the Precursors being ottsels twist solidifying Dax's decision to want to be one, but it could've been built up much better IMO. Maybe that's just me. What do you think?
And yes I know Jak is the focus in these games really, but Ratchet and Clank were able to give Ratchet and Clank fleshed out character arcs despite almost always being on-screen together at the same time.