I can't say physics now because every single modern game that ships is expected to have a physics engine, so that one has been ruined.
The voice acting would have been nice if they got better voice actors. That guy who did the male elf voices makes me cringe and Wes Johnson was way too over-dramatic in his deliveries everywhere EXCEPT the Arena announcements. I actually preferred the old Imperial voice we had in Morrowind, except when he did that horrible fake British accent in Tribunal.
For me, the biggest improvement made (like other people think) was in the AI. Sure it's clunky, resource-hungry, terrible at path-finding, and incapable of sane conversation, but at least they could do more than aimlessly wander.
Seriously, for all I knock on Radiant AI, it was an excellent concept, and I am ecstatic that Bethesda is giving it another go in Skyrim. The only problem Radiant AI had in Oblivion was that it was poorly executed, but then again, at least half the features Oblivion shipped with are the same way.
Morrowind is the very definition of elegance through simplicity, but I have to say, Radiant AI was an excellent step in the right direction for this series. This is something that most modern games don't even bother with because the developers have no intention of the game hanging on to you for years.