Don't lump me with your imaginary "segment" of the Oblivion fanbase, thanks. I'm not a moron. You're suggesting that Oblivion was designed for idiots who can be distracted by flashy, colorful effects and "Press X to win" gameplay. Drop the condescending tone, and this crap about how "It's not bad, it's just a stupid game for stupid people."
Now then, once again in order:
See my spoiler with regard to the Main Quest. Have you ever broken into Vivec's Palace before you're supposed to? You can't interact with Vivec until you're supposed to, and you can't get to that point in the game if you murdered the essential NPCs. So the end result is the same-- if you want to actually see the MQ to completion, the essential NPCs can't die.
Now, a couple things with regard to the compass. First, and once again, you have the choice to use it. If it bothers you, don't pay attention to it. It's there as an option, nothing more. Giving the option for people who don't want to spend days searching for a cave isn't a bad thing. I'll concede that there should have been an option to turn it off if the player wanted to, but just because it's there doesn't mean that you're forced to use it. Second, the compass only leads you to major quest objectives. If you only ever follow it, and fast travel to your destination, you're going to miss out on a http://z.about.com/d/vgstrategies/1/0/Q/1/OblivionMapAGM_v1.1.jpg of content. While this may not matter to the person who doesn't have the time or patience to really explore the world, it makes a big difference to players like us (yes, believe it or not, I do like deep, imaginative game worlds and a compelling narrative).
Ah, so you're complaining that they stripped out weapon types. In a 2005 interview, Gavin Carter stated that "We've looked at the skill list and made it so it's a little easier for us to balance. So now there are 7 skills in each category, combat, magic and stealth. Each have 7 representative skills. For example, the blade skills are combined. So short blade and long blade are now only skill. But it works a bit better. So, there are a few more changes like that." http://planetelderscrolls.gamespy.com/View.php?view=Articles.Detail&id=5 Whether you believe him or not is a different matter, but if this system did in fact make it more balanced overall, then it's a better gameplay experience, and I'm willing to accept the tradeoff.
The point of an RPG is choice and consequence, typically in story terms. I don't think penalizing players for experimenting in terms of how they play is a good thing. A lot of your complaints seem to stem from the fact that you don't like that more people are able to get into the game and experience it this way. Not everyone is part of the elite clique of hardcoe gamers that you're lucky enough to belong to. I think you're missing the point a little bit. It annoys me how polarized and elitist the gaming community is, where if you don't like keyboard-snapping frustration, you're branded a "casual" gamer.
There is a "backpath" that allows you to complete the MQ without most of those "essential" NPCs, and the conversation with Vivec shouldn't be needed, in that case. That beats having a number of "essential" NPCs get struck down by opponents' weapons or spell effects 20 times during the course of a mission and keep getting up again.
As with "Fast Travel", the quest compass is NOT an "if you don't like it, don't use it" deal. The quest descriptions were based around the use of the compass, so NO directions of any value were given. Without that compass, "somewhere North of here" won't get you very far.
The "magic number 7" obviously makes the game so much better, right. If that's how they "balanced" the game, no wonder it's so screwed up. I'm much more inclined to believe that they wanted to cut the number of lines of text on the menus and stats screens for console play; at least that would be a "rational" excuse for consolidating so many skills and limiting character diversity so thoroughly.
As for choice and consequence, Morrowind was a bit light on the "consequence" part, except in terms of skill-based failures (where it was somtimes a bit excessive); Oblivion took "consequence" out of the game almost completely, to the point where the character's skills or choices hardly mattered except as a way of triggering ridiculous "perks". Any more "arcade oriented", and they might as well have just placed "power-ups" scattered around the dungeons, like in Pac-Man or Super Mario Brothers. I don't brand all (or even most) of OB's fans as "casual" gamers, but they're far more "action game" oriented overall than MW's fans, who are generally far more "RPG" oriented. "Hard-core" and "Casual" gamers exist in both groups.
Oblivion made a number of very good and needed changes to Morrowind's game mechanics (better animations, NPC schedules, poisoning of weapons, sortable Alchemy ingredients that showed "matches", etc.), it's just that it gave up far more than it gained (Weapon types, simultaneous Robe/Armor/Clothing combinations, Levitation, do-it-yourself Enchanting, etc.), in my opinion.