I don't get why you would find the WC less interesting if Germany and Brazil don't make it past the group stage.
At the latter stages i want to see the best players playing the best kind of football, and not parking the bus. I would not want to watch Iceland play football even though i respect they way they do it as i don't support them i couldn't give a shit, i just want a world cup with full of entertainment.
It would be quite dull for both of them to go out, I mean i'd rather have a semi final of Brazil-Spain/Germany-France, because i will 100% get a high quality match of players that actually know what they are doing, rather than the manager just telling them to defend and win set pieces, Spain and Portougal 3-3 is a good example, best match yet. And 80% of those games will happen after the groupstages, because the quality will be higher.
EDIT: Responding to your edit - Yes Iceland went through to get battered 4-1 against France, such a exicting tie. It was a good fairytale though.
Sure, I agree with you that the quality gets better past the group stage, definitely. Iceland was actually battered 5-2, but it is unlikely that another team going through in the place of Iceland would be off much better.
I disagree that if Germany and Brazil get beaten out the quality of the matches the quality of the other matches will be bad, because for them to be beaten it will require skill, and not just pure luck. If the other teams manage to beat out Germany and Brazil from the group stage, it
does mean that the quality of those teams is significantly better than the quality of Germany and Brazil. I don't think that the manager of the other teams would tell them to just defend and win set pieces if they would make it through further. I think we will be served good football in any case.
Some people like to cheer for the underdogs, and I for one think that it would be fun to see the old champions beaten by some new, unknown teams that you wouldn't expect to do well in the competition. This does not mean that the quality of the football will be worse though. I get where you're coming from, but I highly doubt that the quality of this WC will drop if we don't see Germany and Brazil make it past the group stage. This is very unlikely as well, I think they'll both certainly make it past. The chances of that not happening are quite low.