Perhaps have the game set around one large city with a limited country side of various caves and ruins. Caves and ruins could be designed pretty complex and laid out in a traditional linear game design and take up many missions of the game. Exterior levels could possibly be like Fable. Not total free roam but many sections of the world in which you can explore. IDK how much physics could be implemented but puzzles using the 3D depth of the system could be special. Lock picking in 3D? setting a trap in 3D? discovering a switch that would normally be hard to spot in a 2D space, then proceeding through a secret passage. AI could be on Morrowind levels so I think that would be enough. The exterior environments would of course be far more static than Oblivion or Skyrim but that doesnt mean it couldn't show some awesome part of lore or country we haven't seen yet. It could even have a co-op aspect easily implemented in a game world like this. Use Wi-FI auction houses to sell items you have came across or buy them, trade with a friend sitting beside you even. Duels in the arena?
Try not to think of it as Oblivion or Skyrim or even Morrowind, a TES game that takes TES and adapts it to a portable environment. While at first that sounds like lots of compromises I think it would be a good exploration tool for TES. A way to test design philosophy of more linear aspects of the universe, and the 3D effect if properly implemented would not only look visually stunning, but as i said above offer new ways to implement puzzles, actions like lock picking, and more.
So Any idea's, anyone else want to see something like a portable elder scrolls? I just see that now we finally have hardware to make a proper large in depth western RPG akin to TES in the portable realm. I think the possibilities of adapting the franchise to a portable environment are just too good to pass up.