Morrowind was a LOT better in terms of art, at least. Its overall style was pretty damn cool, and the concepts it worked with were a lot more unique than anything Oblivion and Skyrim had to offer.
The same goes for the story, really. Skyrim and Oblivion were essentially about dudes who were born with somethingsomething godpower fate. Worse, in Oblivion you don't even play that dude, you're just some random henchman. Morrowind makes you work hard to become the Nerevarine, you're not just born like that (Ok, you were "born under a certain sign", but so were thousands of others). There's nothing inherently awesome about except the fact that you're the player character. Even the villains are self-made: They're just ordinary chimer who made themselves divine by tapping into the heart of a god. That's pretty badass.
The C&C was not all that great (although you couldn't just become the master of absolutely every guild and faction as easily as in the later games), but I felt a lot more involved and engaged in the story and the world than anytime in Oblivion or Skyrim.
You're Nerevarine in Morrowind, your heroic personality isn't defined by what you do in the present but who you were. You may need to earn that title but at the end you are Nerevarine most f***ing cool Mer ever lived. Also in Oblivion we're literary THE random dude. Why it's a problem that there was another NPC who was special? And he was just a tool, actions of the random dude were much more important.
PS:Torment and KOTOR2 only RPGs i know that choices of the player define what makes the main character a hero/villain. Let's accept we felt a lot more involved and engaged in the story and the world because we're young back then. It doesn't mean Morrowind didn't have better parts(story, setting) than Skyrim and Oblivion. However C&C, dialog, quest design were worse imho.
Hm, I'd have to disagree with the Nerevarine. You literally become the Nerevarine, the only thing that you were born with is, well, your birth sign. The character is a blank slate, all we know is that he or she was in prison and born under a certain sign. There are failed Nerevarines who started out exactly as you, but you were simply better. It's kinda the whole point of the quest, really. And you're not necessarily a Mer, of course.
Yeah, the Oblivion PC was... Well, nobody. Completely useless, as reflected in the whole gameplay, which was just as useless. Not exactly the kind of "hero" I'd want to play in an RPG.
Morrowind had lots of C&C, though. If you decided to kill Vivec or any important quest character, well, tough luck. Looks like your game is going to be a lot harder, but it's still possible to beat. It's not much of a choice, of course, but it's at least something. Not to mention that you had several ways to do most quests. Unlike Oblivion and Skyrim, which had, in total, about one choice. And that's to back the Stormcloaks or the Imperials in Skyrim, really.
Anyway, Morrowind is absolutely a flawed game, still, and it has not aged well in terms of mechanics, but all in all I still feel that it's a lot better designed than the subsequent TES games.