I'm not talking about NPCs repeating themselves in Oblivion - I'm talking about NPCs actually having diffierent voices in the same conversation. Example:
NPC (high pitched voice): Hello my name is Bob.
PC: Hello Bob.
NPC (now in a much deeper, completely different voice): I have a quest for you.
PC: What in the name of the Nine Hells just happened to your voice?! Puberty hit you in an instant??

Drove me mad. And regarding to the AI - certainly not comparable to the cycles of Gothic, where the NPCs move around with a purpose. Most of the NPCs in Oblivion were bumping into each other, walking around without any purpose whatsover, and then stopping to "have a chat" with other NPCs, where the conversation would end up being something like:
- "Yeah, the king of thieves is a dangerous man."
- "I saw a bear the other day."
- "Nice weather we're having."
- "Hello"
- "Nice weather we're having."

It's like trying to pay attention to a bunch of very old, very senile people that have no idea who - or what - they're talking to/about. The fact that demonic gates are popping up all over the place without a single NPC even mentioning it was just plain horrible - at least the NPCs in Two Worlds were talking about things that mattered.

I certainly wouldn't rate NPCs, their AI or their conversations above Two Worlds. It's pretty much of the same, fairly low quality, especially after playing Gothic for years.