It's unfortunate that development has been so rocky, but given that unfortunate reality, I agree with your choice. Whether I look at such a dilemma as a consumer or a creator, I'd choose a good product later over a bad product now. After all, the world already has plenty of video games, it's good games we need more of. So by all means, don't release it until it's good and ready, we'll be ready whenever that time comes.
As long as you're totally reevaluating things though, any possibility of a major graphical overhaul? To be clear, the overall art direction is great, I'm all for the colorful cheerful look, and I have no problem in the least with the 2D pixel art look, in fact I prefer 2D visuals for 2D gameplay. But the one thing I was always a bit disappointed by was the resolution of the assets in the preview shots - it didn't really look like tiles/characters/etc were all that much bigger than in Terraria. Or, more accurately, it didn't look like they were much higher resolution internally, before being scaled up to giant "pixels" made of multiple actual physical monitor pixels at final display size. No matter what you play games on these days, be it a tv, desktop, laptop, or handheld device, the new versions of everything are running at higher display resolutions than were standard when Terraria first released, so I would really hope that Terraria's successor would up the base resolution of everything to match, and thus fix my only significant complaint with Terraria's graphics. Despite the excellent amount of visually unique equipment available at this point, the sprite resolutions in Terraria are so low that they really cut into the practical difference between one outfit and another, especially armors. This has always impacted my ultimate enjoyment of playing character dress-up, which is a vital part of any game that allows you to do so. Plus, it'd just be generally nicer looking if more detail were fitted into any given assets instead of seeing so many giant upscaled pixels wasting display space. I don't want realism at all, but things can still be stylized and cute while having enough resolution to actually include mouths on player sprite faces. There have been a few times I've thought about personally modding in my ideal outfit, but I always decided not to because it could never look truly good at such low resolution.
Anyway, I figure this is probably wishful thinking at this point, my assumption is that the graphical assets themselves are the one part you're most likely to keep among all the work done so far. (And giant upscaled pixels aside, the few shots we've seen do look quite nice.) Rather, it's overall game design that you really gotta rethink at this point and the graphical assets completed so far can pretty much be used either way. But on the off chance the entire visual presentation is something you're considering redoing, it'd be great if you upped the base resolution further while you're at it. If that happened, I'd be even more eagerly awaiting Otherworld than I am now.