Immersive and nearly perfect...
Approximately half of the 9 GB Oblivion disc is voice acting, a nice change from Morrowind's pages of text conversations. Speaking of voice acting, a major change is that of NPC's. They now seem to be really living lives, instead of simply waiting for a hero to grace their presence. They all have specific goals and tasks, and seem very realistic. Most character models look excellent, and some wonderful chats can happen. NPC's even talk to one another, which at first is rather amazing.
Quests are much more varied in Oblivion than other Elder Scrolls titles. Many have twists and turns most won't see coming, and are rather interesting for the most part. But on the downside, guild-related quests have been toned down. While your actions actually affect the guild, one seems to climb the ladder too quickly in Oblivion. The number of organizations that are available is less too, but each one feels more life-like.
The graphics are stunning, as anyone who has seen the screen shots would know. The outdoors is breathtaking, while the caves and dungeons create eerie environments just perfect for goblins and other creatures to live in. Speaking of creatures, combat is greatly improved over the past games. A hit is a hit, none of this "I'm smashing the rat in the face but nothing is happening" junk anymore. Varied attacks can be performed, and magic can easily be casted quickly....making the battlemage much more intimidating.
Now, I've covered a lot of the good. The bad: Oblivion tries to appeal to a much larger audience. Therefore, many things have been toned down. Less weapon types, in fact all have been grouped into 2: blunt and swords. Armor has only two types now too: heavy and light. You can no longer sleep wherever you want, or kill important NPC's. Some freedoms have been removed at the price of good gameplay. My biggest issue is that of auto-scaling. In Oblivion, creatures get more powerful as you level up. Caves of rats are replaced with ogres, and so on. So the point of leveling up is slightly diminished.
Overall, Oblivion is amazing. If you have played no other Elder Scrolls game, it is perfect. Not only is it a wonderful game, you have nothing to compare it to. You won't know of some great things removed that way.