Wow, I'm just the opposite. Oblvion is the first medieval fantasy type game I have played where I enjoyed playing a mage type character. Most magic systems (D&D I'm looking at you) I can't stand. I think what does it for me with Oblivion is the ability to blend different spell effects and create your own to suit your exact purpose. ...
I do agree with most of what you've said, particularly about blending or merging the magic. But I can still recall my frustration the first time I spent money for an uber burden spell, only to find out ... it doesn't work on the NPCs!!!
On the other hand, when I played Morrowind for the first time ... wow. There's a magic system that appealed to me. (I understand that many people feel the magical system of Morrowind was completely overpowered when compared to the system in Oblivion). I love how low alchemy resulted in failed potions (yes, I know, there's a mod for Oblivion that does the same thing). I loved Levitation, the power of reflect, and so on. Most of the differences between Oblivion and Morrowind have been nullified with mods, but one of my frustrations - in playing Oblivion early on - was how some of the magical effects were basically useless.
@ Madocmayhem: I love Atronach birth sign in Oblivion, for it's 50% spell absorption and boosted magic. Breton (50% spell resistance + 50 spell point increase) + Atronach birth sign (50% spell absorption + 150 spell point increase) + Alchemy as a major skill (Flax Seeds and Steel Blue Entolama cap makes restore magicka) = one serious magical talent. I've taken a level 9 Breton Nightblade through all the Mages Guild recommendation quests - including Fort Blueblood - with FCOM installed, no problem.
But, yes, I enjoy the magical system of Morrowind, too. It'll be interesting to see what comes out with TESV.
~ Dani ~