Cyrodiil is nothing like England in the game, and it definately is nothing like England in other lore.
But Oblivion, assuming it is made by Bethesda, is canon. Just because people don't like it, they can't simply not include it. I don't like Daggerfall, but you can't ignore what happened. Oblivion built on lore, although it did so in other areas which Morrowind did not cover. It simply allowed you to come to your own conclusions, rather than telling you what happened. A good example is the Renrijra Krin - plenty of clues, but not much else, and that's what I prefer. You can't punish the game for making you use your own logic.
Indeed, if the game is made by the official creators who hold the license, everything presented in it is canon unless said otherwise (i.e., if it is retconned in future games, or if the creators confirm that it is wrong officially in statements outside of game material.) Although, a lot of the things aren't even necessarily breaking of lore, just because Mannimarco was alive before doesn't mean he has to be for the rest of the series, and Oblivion doesn't all look like a Tamrielic hell, as is shown by the fact that Shivering Isles, the realm of Sheogorath, looks nothing like the theme park version of hell, it's just the part you visit in the original game, presumably the Deadlands, that now looks like it, and Mehrunes Dagon can have it look however he wants. In the end, canon is NOT determined by the fans, some fans, however, seem to think otherwise, and believe that their favorite theories MUST be true, and anything they don't like about their favorite series obviously didn't happen, the most obnoxious will even go as far as to act like the creators are wrong if they tell them that what they say isn't true. They may even act like they know more about the lore than everyone else, including the people who wrote it, truly, they are a troublesome lot.
'd certainly be bothered if the realm of destruction was all about rabbits, rainbows and flowers. That'd be anti-lore.
Unless of course the rabbits were killer rabbits that ripped people apart! And the flowers were either dead or carnivorous plants! And the rainbows... I'm not sure how you could get those to invoke destruction.
You do enter another Daedra's realm in the game, and it is depicted as the same as Dagon's realm...yet I dont consider that a way to assume Oblivion is a fiery pit. Sometimes Bethesda is lazy: they were in Morrowind, they were also in Oblivion. They just REUSE things too much: whenever you got transported to some mysterious place in Morrowind, the place would either look like a daedra temple, or a dwemer ruin. Its like they didnt take the time to actually make something special, different from everythigng else in the game.
It's not just Bethesda, lots of companies like to reuse things as much in games, I suppose it's understandable, because each object in the game takes time to create, and the employees who make it must be paid for their work, so in order to reduce the cost of game design, it's only natural for developers to reuse whatever resources they can as much as possible, generally saving unique resources for particularly important. So an RPG, for example, might have a few generic tilesets for dungeons, but if we're lucky, ones of particular importance, such as the place where you must confront the final boss, or one that marks a particularly important point in the story, might use an entirely unique tileset.
If you don't want it to be cannon, it doesn't have to be cannon to you.
I don't think you can stop a cannon from being a cannon just because you don't want it to be, it still shoots and is just as lethal.
Sorry, just teasing you.
Quips aside, I do not believe the temperate environment is anti-lore. Certainly, the first edition of the PGE described Cyrodil as a tropical jungle place, but the first edition was published a long time ago. More recent depictions (such as A Dance In Fire, a Morrowind book) describes a considerably more temperate environment. Climate change does, in fact, happen.
But as drastic as a climate change as we see in Oblivion in comparison to the old Pocket Guide seems unlikely to happen from natural causes in the timespan between the two, and I doubt it would eliminate all traces that the climate was ever anything but what we see now. Of course, in Tamriel, Bethesda can use "A Wizard Did It" type explanations to explain these things, having actual wizards, as well as crazy things like Dragon Breaks, and when all else fails, Bethesda can say "A God Did It", but that's all a pretty half-hearted handwave for what's obviously done to make the game more generic.
Personally, I interpret the part of the Imperial City depicted as merely a scaled down version of the innermost part of the city, a bit how the city depicted in Tribunal was not meant to be considered to be all of Mournhold, but rather the central district of Almalexia. And yes, I would expect the inner city to be considerably less culturally diverse than the outer city, let alone the foulburg.
In Mourhold, though, we were stuck inside that part of the city, so we couldn't see the rest of the city, in Oblivion, however, one could explore everything you'll see on the map, you could step outside, and see that all there was to the city was what you could explore, most likely, it's meant to be the ENTIRE city, a highly scaled down version of it, of course, but still the entire city.
It's also worth noting that, if you go to even parts of the Cyrodiil that are supposed to have a unique culture, like say, Bruma or Cheydinhall, while the architecture may reflect the location's culture (both cities presumably show Nord and Dunmer influences in their architecture, respectively, Cheydinhall doesn't look much like any Dunmer town I've ever seen, but since we've never been able to explore the mainland of Morrowind other than part of Almelexia and Sotha Sil's Clockwork City, it may be that some parts of the mainland do have architecture similar to Cheydinhal.) and character's will often reference the different customs, but the behavior and dialog of the character's doesn't usually differ much from what you'd see anywhere else. So the fact that the Imperial City doesn't look like much of a melting put really doesn't seem to tell us much.