Er... It was? I mean, there were improvements, yeah, but huge? No. The animation was still clunky. The graphics had an almost identical level of detail, looking at texture sizes and polygon counts. They had the advancements you'd expect from using a modified engine from a game that was 2 years old, nothing that I'd characterize as a "huge" improvement. Morrowind to Oblivion was a "huge" technical improvement. DOOM 2 to DOOM 3 was a "huge" improvement. Hell, Daggerfall to Morrowind was a "huge" improvement. But having a slight increase in polygon count or draw distance is regular progress, not "huge" improvements.
Having played Oblivion on the PC as well as Fallout 3 on the PC, I can tell you that for me personally the draw distance improvement was a big deal. As well as the detail they were able to display in the distance with the mountains and DC. I didn't notice as much grass popping in, and it was leaps and bounds smoother in it's loading of cells. Also, HDR and AA together looked gorgeous.
The water was much more realistic in look and feel as well as the fog and particle effects were much better. I would also like to point out, I love all BGS's games equally, and as much as I love the graphics and know Bethesda will always push the boundaries, it's their gameplay that hooks me. I can still get lost in morrowind, as much as oblivion and fallout 3.
I think what I'm getting at is that Bethesda will always try to make the best looking game they can, Todd has said himself he likes good graphics. he's a gamer too. He knows just as well as we do (if not better) what it takes to make a great looking game.