I think that it should be like GTA 4 but with its own twist, in that you can escape guards and escape imprisonment as a whole. It should be hard, but because of the rather absurd crime system in Oblivion I found myself not wanting to push buttons and try new stuff in the knowing that I would have to either pay a ton of money or lose skill points in jail. The alternative is that being in jail shouldn't make you lose skill points unless you are there for a long time. Also I think we've talked about this a million times but I'll just throw it out again: guards shouldn't get worked up about accidentally picking up a cabbage.
And another thing is that if you are wanted, you should be wanted in the respective region/city in which you committed the crime. And murders in the wilderness shouldn't magically alert guards in every city in the land. I think this will allow players to be more free to push various buttons and try out new stuff. It would also add a whole new epic thing to the game: escaping and hiding from guards.
What do you think? Yay or nay?