Much as it pains me, I agree with Sleign- Bethesda shouldn't touch this idea with a thirty-nine-and-a-half-foot pole.
Well, I wouldn't go that far. It all just depends on implementation. Some of my favorite quests in Oblivion were the ones that took you out of reality. For Vaermina's, you go to retrieve an artifact from a guy who became trapped in an eternal coma, and as you proceed through the fort he makes his home, everything begins to look strange. Before you know it, tables are on the ceiling and you end up in a black void with floating rocks. And then there's the dreamworld quest where you literally end up in some guy's nightmare. Or the quest where you go into a guy's painting, and everything is textured in a painted fashion.
I don't think it's very wrong to consider this possibility in small applications. For instance, a cursed book forces you to relive the events written inside when you open it. I think it'd be pretty interesting to play as someone else, as it were. The real question is, which among the very awesome stories in the series deserves to be reenacted?