See, I can agree the Morrowind setting was more interesting but the combat (and stealth) were dreadful for me. The most un-reactive first-person action combat I've ever played. Oblivion's combat has more weight and the stealth was pretty good. I also felt the side-quests were far more creative; there's nothing in Morrowind as enjoyable as the Brotherhood quest chain in Oblivion.
I agree that combat sucked in Morrowind but it still felt RPGish. I had no problem with swinging my sword and making no contact, knowing that my low Blades skill was affecting the outcome. Oblivion's combat, while viscerally and technically improved, felt more FPS or action game-ish.
And yes, overall the quests were improved in Oblivion as well, but with the awful writing/dialogue/voice acting, it was something like one step forward, one step back.
Morrowind just felt magical. I remember being ridiculously AWED at every new town/sight. It was just a wondrous feeling to roam the land, everything so alien. It truly felt like "another world". Whereas Oblivion was cookie cutter fantasy. Pretty and polished, sure. But nothing unexpected. I didn't feel like an outsider.
Everything from the Census office to the first few side quests in Seyda Need to finding Caius Cosades and going on a few missions before the main quest opens up just felt so organic and drew you into the game.
Compare that to Oblivion's opening where you meet the EMPEROR(!) in prison(!) and were entrusted with an amulet because you were the chosen one (!)! How were you supposed to engage in side quests knowing you had to close up those gates NOW NOW NOW!?
In Morrowind Caius tells you to go around and do a few jobs to earn some experience before he sends you on the bigger quests. It just makes more sense.
And back to quests: they WERE improved in Tribunal and Bloodmoon if I recall correctly. And those were probably the best expansion packs to any game I've ever played (even if I didn't exactly finish either).