The only problems I see with it is:
1. The framerate reduction. The reason the other games can do lots of NPCs is because they are low poly, disappear within moments after dying (unlike TES where the corpses stick around a bit), and incredibly simplistic in their AI (Have you ever seen a CoD enemy that didn't Shoot, Run, Crouch, Shoot, Run, Repeat?) Bethesda always does high quality and detailed models on enemies, even if people don't see it when comparing the newer stuff to it. I'm sure we will see more enemies at once but I'd be fine seeing 5-9 at once.
2. Loot. A huge gripe with TES is cash is easy as hell to get, especially at high levels. I don't think giving level 30 players a lot of weak, one shot-able level 5 enemies with armor. weapons. and various supplies is a good way to balance that. The obvious fix for this is to duplicate all the regular armor in the game, name it something to indicate it is worth less, and give that to the bandits. Instead of finding an Iron Longsword on every bandit worth 15 gold, you see a "Worn" version worth about half as much.
i think we've seen a lot of games that solved these issues.
1. characters can have a few different LODs to they are not that high poly from afar. no one would even notice.
and no, i didnt see any COD enemies that do that but i didnt sea ny deadra AI does more either. i agree that the human NPCs, the ones that have routines , are more complicated that most of the combat AIs in other games but i wasnt talking about village residents increase in numbers but the combat NPCs like the enemies. i really dont think that computing power will be an issue.
2. i think that if a creature is of a lower level than he drops low level gear. no fear of getting high level gear just because there are more low level enemies. also bethesda could always balance loot to be less likely to drop to counter more enemies.
now, personally i'd prefer les enemies that are more challenging and sophisticated than a large mob of mindless undead, but this was just an idea on how to balance the leveling-up with the decrease of challenge.
a game that gets EASIER over time is not something i find attractive. there SHOULD be a way to create fun challenge without resorting to auto-scaling all the time .