Just make it so the host is running the "world" and the guy connecting in becomes a follower, just like the ones you normally get, except this one has free will and Daedra armor. The quests and the game's state are all for the host, and the co-op buddy is there to help out. If you want to get fancy with it, I suppose you could change some of the NPC dialog to say "It's up to you and your friend" instead of just "It's up to you". . . .but that's just fluffy stuff that doesn't really matter.
It could even work in Fallout - though it would be more difficult. We were thinking maybe only the host is the actual "Vault Dweller" and the co-op player is just like a normal Jericho-type-guy that you picked up along the way. In that sense, only the vault dweller could trigger VATS, but then both players have to line up all their shots and hit OK before it unpauses. Or maybe player 2 has no vats at all, and just has to stand there paused while the VD auto-headshots stuff.
Please please please gamesas, we KNOW this isn't outside of your skills to provide. Your games are already EPIC adventures that people cherish for years - but with this - they could be games that we cherish for a lifetime.