The schedules add a considerable amount of life into the world, that appeal to a broad TES audience, one that I fall into. The audience that enjoys watching the world unfurl around them. Whether that's gawking at a waterfall in the wild, or admiring the sense of life in a town as NPCs wake up in the morning, have their breakfast, go to work tilling the fields or managing their stores, breaking for lunch, locking up their shops in the evenings, chilling out at the taverns in the evenings. Some of the NPCs are really unique. Some of the married women cheat on their husbands, sleeping around with various other men. There's a pretty solid drug ring in Cheydinhal, where one of the Orcs there travels to the Imperial City once a week to a drop-off point, exchanging gold for skooma, returns to Cheydinhal for a while, then takes that skooma to a Dunmer camp in the Valus Mountains in exchange for more gold, which gets handed to the crime boss back in Cheydinhal (after he keeps his cut).
The "life" in the two games works on two totally different levels.
In Oblivion, you've got NPCs that got to and from work, have families that some actually talk about, and do things that makes them function as individuals. The game did this very well, and made it very "lively" on the surface, aside from some issues with repetitive dialog and NPCs changing voice in mid-conversation. The society as a whole, on the other hand, is an empty shell: there are no signs of conflict between the "approved" factions, or between the very different ends of the province (the Colovian Highlands are described as pretty much what Oblivion portrayed; the Niben basin, including around the Imperial City island, was described as "jungle"). There was no "politics" (despite the looming power vacuum that should have drawn potential tyrants from every nook and cranny), other than a few petty antics of some nobles about personal matters. The various religious cults, and the assorted surrounding cultures' native religions, really didn't do anything, or even mention that they were TRYING to do anything. The empty and overgrown farms, the ruined forts, and the lack of functional mines that produced anything other than Goblins made it seem as if the Empire had already fallen a generation or more ago, and never recovered, instead of being just past its peak and starting the long slide into decay. In short, Oblivion's "society" was all but non-existent, despite all of the advances in AI scheduling and voice-acting.
Morrowind's NPCs stood around or paced a short distance back and forth. They repeated mostly the same lines as the other 30 NPCs in the vicinity, BUT there were occasional topics that unlocked as you did things or inquired elsewhere about related matters. Those differences grew as the game went on, and some NPCs had a LOT to say by the end of the game, but had to be "unlocked" gradually. You "got to know them" over time, whereas OB's NPCs had a lot more to say as individuals "up front", and then were "tapped out". The society in Morrowind was wracked by conflict between the 3 Great Houses, bitter rivalries between the local Camonna Tong and the foreign Thieves Guild, local Telvanni wizards and the Mages Guild, the local Tribunal followers and the foreign Divine cults (and both of them against the older Ashlander religion), along with several divisive issues within several of those factions. The deeper you dug, the more there was to the story, and you quickly discovered that much of what you thought you knew was only a distortion of the facts. The NPCs were mostly shallow (with notable exceptions, as in OB), but collectively formed a detailed picture of a society in turmoil from very believable causes, and with visible in-game results.
In Morrowind, the more I looked, the better it got. After 5-6 years, I'm still occasionally playing it (thanks to mods that have extended its life). Oblivion looked specatcular, and drew me in completely at the start, but then failed to hold my attention, because there was nothing more to it. The longer I played, the more I felt the lack. The overhaul mods for OB (such as OOO and MMM) partially "mask" the underlying issue (and make it slightly more like Morrowind in several ways), but can't cure it.
To me, Oblivion was a great GAME, and nothing more; beat it and then move on. Morrowind was a strange new world to call home. I am counting on the next game in the series fixing the problem, and hope that Skyrim will bring back the feeling of a functional world that I found in Morrowind, but could not find in Oblivion.