I don't think Morrowind and Oblivion were so different in this regard, nor do I think it would have been very different if the tools had been available from the beginning. You've made this assertion before, and I don't see where you're coming from, aside from, perhaps, a bit of optimism and/or the grass is always greener kind of thing. Mods are insular because modders are independent; teams don't work often work well and that's always been true.

Early Oblivion's days seem more sculpted by Morrowind's... maturity than anything else. More early Oblivion modders were jaded cynics who had seen too many team projects fail to get involved in one. With Morrowind, things were newer. More people tried those things. The vast majority failed, but with so many trying, a few succeeded. With fewer people trying, fewer happened for Oblivion.

But frankly, I think you're massively overstating how insular Oblivion mods are, or ever were. You've also asserted before that Oblivion somehow had more compatibility problems than Oblivion, which simply isn't true (contrary to your previous assertions, the Rule of One applied equally to Morrowind — it was, in fact, worse because there were no FormIDs so EditorID conflicts were a thing that could easily happen (and the game could not load at all if any were present).

There were two important differences:
1. Mods were insular in Oblivion (until Mod Deisolation was made possible in late 2006). In Morrowind, they were not.
2. While there was already a kind of "rule of one" in Morrowind, it was several magnitudes less strict than in Oblivion. Except for leveled lists usually if a mod touched different aspects than another, both worked. In Oblivion the entry locked due to the rule of one was excessively larger. Mods that did entirely different things with entirely different goals usually (not always, but usually) worked in Morrowind, but in Oblivion is was highly likely that they would not work together.

Now combine #1 with #2 and you'll end up in a situation were you can't make compatibility patches, but you need to have compatibility patches for mods doing entirely different things. Famous example: OOO vs. TNR. Now as mods grew, you need effectively a compatibility patch for all of your mods (read: The bashed patch). I've played Morrowind for a long time, and only really late, with lots and lots of mods I needed tools to get my mods running as intended. In Oblivion I needed external tools from day one.

Many early mod projects soon turned into something Wrye later called "overlord mods": If they wanted to have a certain feature, they just couldn't recommend it or outsource it, but had to include it. And the mods grew. Likewise the potential conflicts grew. Back when I was active, until two years ago, nearly every second compatibility problems people experienced were caused by mods started in 2006, due to design decisions that were later obsolete - but were a necessity back then.

Now this not only affected individual mods, but also mod teams. I'm pretty much the very example of an independent solo modder, so I can only recall what people who worked in teams back then told me. And it wasn't, compared to Morrowind, nice.

My hope is that with tools becoming available quickly for Skyrim (except of course the CK) that the tendency for overlord overhauls is avoided.

With fallout 3 there really is only 3 overhauls of note. I'm not aware of overhauls in New Vegas, but even less I hear. I plan to mod it up soon, so I will know then.

If we have the tools to work around the peculiarities of a game then the existence of overlord overhauls could very easily be linked to ego.

Mod interaction of that sort was used only rarely in Morrowind. Very few mods took advantage of it.

What? No, it was precisely the same. The last mod to modify a given form won, always. Been true since Morrowind, straight through to FO:NV (and probably Skyrim). Two mods could not modify the same NPC, the same weapon, the same armor. Could not modify the same leveled list. Could not modify the same section of terrain. There is absolutely no technical difference between the two in this regard, at all. I also disagree with your assertion that Oblivion mods that modified "entirely different things with entirely different goals" were "highly likely" to not work together. Can you provide any evidence for that assertion? Because I know of no technical reason why that would be the case, and I don't know of any plethora of mods where that occurs. I'm sure examples exist, but the claim that it is "highly likely" strikes me as, well, impossible. I have a pretty strong sense of how the game works on a pretty deep level, and nothing I am aware of would cause such a thing to be true.

OOO and TNR both modify NPCs. If a Morrowind version of each mod existed (which they do not, to my knowledge), then you would have precisely the same problem, because Morrowind used exactly the same system for these things.

No, I'm nearly certain that the only difference is in the types of mods that were made to begin with. Morrowind didn't have broad overhauls the way Oblivion does, thus limiting the cases in which things were likely to conflict. Morrowind mods were more likely to create new content, new NPCs, and new areas, and so this didn't come up.

Again, this is because said "overlord mods" wanted to control the whole game world. There were (and are) very good design reasons for doing so, and it allowed them to do things that they otherwise could not have done.

But there was absolutely no technical requirement that they do so, at least none that was unique to Oblivion. Oblivion didn't really change that much; the landscape editor/generator was far more advanced but largely the same from mod-records point of view. Scripts could do more complicated things and used a different syntax, but again, that didn't affect the Rule of One or mod interoperability. The only really significant changes were to the quest/journal system, which was really very basic in Morrowind but much more complex in Oblivion. This would be rather minor for compatibility issues though.

I'd just add to this good point in illustration that when Aerelorn wanted to add combat and blocking complexity to Morrowind, he had to first build an add-on module for the game, Morrowind Enhanced, to provide the resources for his subsequent mods.

Which isn't to say that Oblivion lacks addons to supply additional resources, of which the best known is COBL. But you don't need COBL to modify combat in Oblivion, and there are many mods that modify it without recourse to COBL.