Vvardenfal just feels bigger because of the slow movement speed, mountains blocking direct routes to places, and no fast travel.
There are four main reasons why Vvardenfell felt larger than Cyrodiil to me (one of them you've already mentioned):
1. Fog. Being able to see White Gold Tower from practically every square inch of Cyrodiil makes the game world look and feel as small as a model train layout in some kid's basemant.
2. Running speed. Running speed was increased in Oblivion, reducing the real-world time it takes to get from one end of the game world to the other.
3. Starting position. Oblivion places the player near the center of its game world. Morrowind places the player in a corner of its world. All Vvardenfell is in front of the Morrowind player at the beginning of a game - it is a long (and harrowing) journey to reach the northern coastline. It is not nearly as long a journey to reach a border of Cyrodiil.
4. Invisible barriers. The sea around Vvardenfell went on forever. Cyrodiil is surrounded by invisible walls. To make matters worse Oblivion announces that fact with repeated "You cannot go that way. Turn back," messages whenever the player goes too far in any direction. I believe that, psychologically, this makes the game world feel very finite, whereas Morrowind's infinitely-generating cells made that game world feel infinite.