I won't pretend that Morrowind was a perfect game, but what exactly were all these changes in Oblivion that made it so much better?
Even ignoring the fact that attributes, spells and skills were massively scaled back to make them easier to grasp, Oblivion removed too much freedom. The daily routine system gave some life to NPC's, but the compass would point you in the direction you needed to be going 100% of the time, so there was never any quests which involved learning the routine of an NPC or having to track them down on your own - the game would constantly show you where to go and what to do. Enemies scaled to your level, taking the danger away from exploring new areas and the reward of feeling more powerful. By the end of Morrowind you were literally powerful enough to kill Gods.. in Oblivion, even the bandits wore max armour. Random loot makes exploring caves pointless, because there are now rare or powerful artefacts to randomly find, like you could in Morrowind, this meant there's no reason to explore in caves or ruins.. because there's nothing in them. In Morrowind, fast travel could only be used realistically i.e. via boats or silt striders in towns and cities, this meant you had to explore new areas to progress - in Oblivion, you could constantly rely on teleporting to any location you've previously been, massively discouraging player exploration.. for any reason might have been left.
I didn't hate Oblivion, but it was a very disappointing game. I'm hoping that Skyrim learns from these mistakes and can go back to feeling like more of a role playing/adventure game.. rather than an on rails action one.
Yes, the compass, leveling and fast travel are all valid points, but also something that was fixed by mods, and modability is a very important factor in favour of Oblivion. Why would I play vanilla when the modded game is ten times better? On the same note, why won't Morrowind purists give Oblivion mods a chance? The answer seems to be that they don't want to like Oblivion. Some of the points you make does not seem to be entirely honest. Yes, the compass svcks, but is it better with NPCs who never, ever move?
Attributes - scaled back how? They are the same, and they do the same things. You should check out Skyrim.
Spells - there were too damn many identical or nearly identical ones they merely cluttered up the screen, but that's a matter of preference.
Skills - yes, there are fewer in Oblivion, but more balanced IMO. Speechcraft, enchant, alchemy, medium armor, armorer, mercantile and block were unbalanced if not downright broken in Morrowind.
"Even the bandits wore max armour" - glass armour bandits are no match for a high level character, although they are certainly ridiculous. Morrowind, however, is not much better, with every Dremora lord dropping Daedric weapons worth 30000 gold.
Random loot - most items are useless, with enchantments that are either underwhelming or with combinations that make no sense, and are cumbersome to cast to boot. Also, you can get the Black hands dagger early in the game, after which you won't need another unique weapon. You can also get Indoril and Dark Brotherhood armour early on, making pretty much all other light and medium armour pointless until glass.