these whiny babies(or you might call them casual gamers) don't want anything to do with a challenge, or immersion
Your characterization of casual gamers as 'whiny babies' who 'don't want anything to do with a challenge, or immersion' is ignorant and insulting. It is also hypocritical, coming from someone who has just praised fast travel because it "comes in handy."
Morrowind didn't have any quest markers.
Quest markers were necessary in Oblivion the instant Bethesda decided to use Radiant AI. In a previous post I mentioned Quill-Weave traveling from Anvil to Chorrol. Now Quill-Weave is a quest-related NPC. It would be impossible to to locate Quill-Weave without an arrow once she has left Anvil. It would be like constantly moving the Puzzle Box around and not telling players where it is.
In Oblivion you had one, follow the red triangle
Two. One of the options you listed for Morrowind is also available in Oblivion: you are perfectly free to just go look for it without help. There's also another option: back when I played vanilla Oblivion I used to set my active quest to either the Nirnroot quest (if I was doing the main quest) or the main quest (if I was not doing the main quest).
Personally, I think a compromise would be best when they get around to designing TES V: compass markers for those times when we need them and a toggle button in Options to turn them off.
When they took out levitate, they took out so many interesting places they could have hidden things for the players to get, no bridges too far to jump, no cliffs too high to jump, etc. Bring it back.
I agree about levitation. But I disagree with your implication that it was taken out because of casual gamers. Levitation was removed because cities were in their own world spaces. And this was most likely done because of the XBox. The Open Cites mod has shown us that Morrowind-style cities do not damage frame rates on the computer, leading me to believe that Bethesda placed cities in their own world space in an attempt to comply with XBox frame rate requirements. Once that decision was made Bethesda had no choice but to remove levitation.
there were no "essential" immortal characters in Morrowind, instead you got a message telling you that you killed someone you shouldn't have. It's all part of the amazing experience I got with Morrowind, that I missed in Oblivion.
This is also a necessary consequence of using Radiant AI. To go back to my previous example: if Quill-Weave had gotten killed by a Minotaur on her travels from Anvil to Chorrol and all the way back to Anvil (a pretty perilous journey) that would immediately end any possibility of finishing that quest. Imagine the screams of outrage if players could not finish a quest because the game killed off their quest-giver while they were in the middle of a quest. Morrrowind NPCs didn't need to be essential because they never went anywhere, they never did anything. They just stood in one place twenty-four hours a day, seven days a week, 52 weeks a year, waiting for the player to talk to them. I don't know about anybody else, but I wouldn't call that an amazing experience. I'd rather have Radiant AI, with all its problems.