I think a lot of the "jock" gamers might be missing the point. No one's trying to keep you from you'r smashing and bashing.
But for the rest of us nerdier players, these sort of options really help with creating our character and story. If you've never eaten an apple in Oblivion because you'r character was hungry then you might not grasp this.
I never really create character backgrounds or anything. I never ate an apple because i'm hungry, i need the game to tell me that I'm hungry.
But i understand the want for "living a normal life". TES should be like a real world where you can do whatever you want. Obviously the main focus should be the quests/factions because TES is based off of this idea, but It'd be cool to have "realistic" fantasy cities that accommodate a play-style where you CAN just decide to settle down and live for a while.
When you are there, you're prolonged presence in a city could effect the economy in a large way. if you supply a lot of cheap lumber, arrows will be cheap to make/sell. The merchants would want to export more arrows from that city to other cities, expecting a large demand from cities that have much more expensive arrows, so traveling merchant caravans would increase their arrow stock.
It's be cool to see these effects actually happen
Of course, there's always the chance a dragon might disturb you're little vacation.