Morrowind is my favorite game of all time, thus I felt I should make a few comments on where Oblivion went wrong.
Like some people above named there are issues like:
The scaling world making it pointless to level, and when you do, every single mob starts walking around in top tier armour while in Morrowind you had to work to get a full set of your daedric / glass / whatever armour.
While the spells did become a bit better casting wise they, removed some fun parts like levitation e.t.c. And the streamlining of abilities made it impossible to make as interesting characters as you used to be able to. I must say the skill perk system is nice though.
Another levelling based issue is that it is too difficult to level, either you reduce the difficulty and one shots everything or you up the difficulty and find yourself hitting something up to 40-50 times before it even considers dying while you can take 3 hits. Granted, this way you actually gain levels but the enemies around you become even tougher so it does not really matter.
I am sure that there are other mechanics I had a problem with but aside from a few things mentioned these are what I can think of out of the top of my head.
The major issue I have however is how they choose to design the game.
In Morrowind you were an outlander on a harsh island, factions were in conflict with each others and somehow you need to find out why you were specifically transferred to Vvardenfell and should make contact with Caius Cosades in Balmora.
As the story progressed you were making yourself a name in the game, citizens started to regard you differently, you solved or took part in the faction's conflicts and finally got to meet someone with a lot of influence and then perform some task to later play a major part in the near future of what was happening in Vvardenfell.
There is a great difference to this in Oblivion.
Before you even get started out the Emperor walks up to you, with one of the few displays of good voice acting and gives you an epic tale about how you will shape the destiny of Cyrodil and save the world, basically. 30 minutes later you get to know who is the threat and after yet another half an hour everyone in the whole country screams "Oh it is you, the hero of Kvatch! Welcome my friend!" where in Morrowind the church affiliated people only stopped being openly hostile against you where you basically was accepted as Messiah.
I bet you can finish before level 10 wearing the armour you picked up from the Blade's master's supply chest in the beginning whereas in Morrowind you had to train, get reputation, and research what you were up against before you made a move. Now instead someone tells you exactly what to do every step on the way until you save the world.
In an open game world you do not present the player from the start with a quest to save the world and at the same time say "Well, if you want to you can go and take care of a animal infestation in a basement in Anvil, you got free choice!".
Morrowind was all about finding your place in the world while progressing your character and see the environment change around you while you work on the main quest.
Oblivion was all about rushing from point A to B because someone said you could save the world that way.
