I liked how enemies leveled with you in Oblivion. It made it more fun for me. I hate how some games allow you to collect such powerful gear that eventually nothing stands against you and challenge simply disappears.
Enemies infinitely getting more and more HP long after you've maxed out your offensive abilities is not balanced challenge. It's tedium.
Enemies getting stronger based on your exploring and getting better at security and speechcraft and athletics or other non-combat skills making the game extremely difficult until your combat skills catch up is not balanced leveling, it's kind of broken really.
I originally thought Oblivion was a very difficult game just because I spent hours of non-combat exploration in the Imperial City when I started playing.
I do not mind some leveled places, but when it's to the point that you start the main quest after dozens of other hours of play to find your allies dropping dead like flies with almost every enemy being high level Daedra in some of the first missions, it makes little sense.