Oblivion is not what it could be.
The greatest thing Morrowind had going was its ambience. It's mystique, and irregularity. It was a strange and exotic world where a player could explore and grapple with all the myriad foes, some political, some hostile combatants. Lush areas, plus those in the vibrant, eclectic expansions were all worth the time and effort. Oblivion is not. Oblivion is a static world where static NPC's sit very still and look pretty. No one is fat, no one is crippled, no one has a unique voice. Everyone is boring, and each race has two voices, male and female, and say pretty much the same boring thing when you speak to them.
Now, Oblivion does have its merits. The simple upgrade in physics make hunting, dungeon hacking (traps), and some fights more interesting than the dice role swing and miss agravation of Morrowind. But the fact remains that Bethesda did not deliver a mature sequel that was interesting to play. In Morrowind, I could spend hours angering guards and trying to best them with an inferior combat system because their reactions were much more interesting, even if I did have to reads some (god forbid). In Oblivion, every time you bump into someone in a dark cellar in the middle of nowhere every guard knows it and will try to kill you on sight. Bethesda made it seem like the AI was going to blow our minds, "Radiant AI! Radiant AI! Don't forget about Radiant AI!" All Radiant AI improved was the daily trajectories of too many boring NPCs in too many boring places. They cut down the attire factor, too. A great element of Morrowind which was actually downgraded in Oblivion was the clothing. You can't where clothing under armor. Why can't you wear a damn shirt underneath chainmail. I think anyone who would wear chainmail, or platemail on their body without clothing underneath is in for a world of discomfort. Less customability.
The bottom line is Oblivion looks better than Morrowind. It doesn't sound better, apart from the striking in combat it doesn't really play better, and its overall lack of intrigue and mystique make it seem like more than a few steps in the wrong direction. They had the tools, they had the time, they opted for quantity. Jerks.