I'm going to make a long post about why I think Morrowind is better than Oblivion. You might want to overlook, as these points have most likely been pointed out many times. Anyway, here is a list:
1-In Morrowind, the atmosphere was a hundred times better: All the creatures you encountered were entirely new. The vegetation was unique. The harsh province had a much darker and enticing feel to it, which in my opinion is required for a game to be immersive. In Oblivion, Cyrodiil is a cookie cutter world, copied and pasted from modern mythology, which leads me to my next point.
2-Morrowind's lore and story was MUCH more thought out. For exemple, the thieve's guild in Morrowind had greedy opportunists, people seeking personal gain, assholes, betrayers, etc. In Oblivion, you have a bunch of goody good Robin Hood clones. The good-hearted thieves stole from the selfish rich people and protected the poor. The imperial legion was nothing but a bunch of evil lawmen who loved nothing more than to step on the lower classes. Blah blah blah. Many quests had you going left and right, bashing/intimidating/stealing from people all around for dishonest quest givers (Ajira in the mage's guild wanted you to ruin another member's research, Eidys Fire-Eye in the fighter's guild had you collecting protection money, etc). In Oblivion, schemers were eventually discovered and brought to justice. This is in no way logical.
3-Pretty much every gameplay element in Morrowind was better (Except for the Combat/Sneak system, I'll give it that). The higher number of skills allowed for better character development and just made more sense (Axe as blunt weapon? No Unarmored/Medium Armor? Only one blade skill? Come on Oblivion.) The bigger number of equipable parts allowed for more enchanting possibilities. The ability to enchant/make spells without having to do a bunch abysmal quests (and also losing the possibility of being a freelance mage) was a lot better. There are some changes in Oblivion that really made me wonder who the hell was allowed to make this happen.
4-Oblivion's graphics were prettier, of course, but they weren't better. The game's eye candy didn't compensate for poor imagination. In Morrowind, each and every single type of armor, from Iron to Daedric, had a more unique feel to it. The equipment is so bland in Oblivion that you stop giving a damn about what your character is wearing.
5-Why can't I wear clothes under my armor? Why does the Dark Brotherhood armor have to be one piece? Why can't I wear shoulders over a robe? Oblivion lacks in term of character customization.
6-In Morrowind, every type of character had a good reason to be played. Stolen items didn't have a magical aura around them that made them "hot" (which is, imo, a poor reason to make people join the crappy useless boring thieve's guild). In Oblivion, you can be a retarded axe-basher and do everything you can possibly do. I can't believe you can be the guy who runs the Mage's Guild, holds a high position in the Fighter's guild, speaks to the night mother and is the freaking Gray Fox.
7-Fast Travel. God damn it. Yes, I know it's optional, but it's no reason to remove mark&recall, Divine and Almvisi intervention, Silt Striders (Alright, maybe these only exist on Morrowind), Guild Transporters and Boats (the list could go on and on). Also, it makes horses a pretty useless game feature (which would otherwise have been awesome).
Anyway, I'm going to stop the nerd rage here before I pop a vein.