TES MMO just wouldnt be TES imo. a TES online game? i think it should be capped at like 10 players, wouldnt be servers, one person would host a game, and others would join (if your internet cant support hosting 10 players, then you can just join others, im running at around 5mbps down, and can host for 10 players fine on Gears Of War 2 lol)
it would be rather simple i think. well, not setting the game up and stuff, just the story line thing. i mean, Morrowind the boat could've got caught in a storm, and crashed, then some survivors (prisoners) made it to the land. and one would be the key character in the game (host chooses?)... Oblivion, well can you say "Prison Break"? lol. the only problem i would have is the fear of it being like Fable 2, where the other players wouldnt really be noticed. i mean, you could do EVERYTHING with just 1 person in Fable 2. make it Require some teamwork if the game detects more players, increase the creature spawn rates or something, and make NPCs react to all of the players just normally
just my opinion on TES mutliplayer.