Why do I think this is bad?
The main reason I think this is bad because it seriously hinders player interaction. Sure, you may be a solo player, but a lot of people who wanted a multi-player ES game for player interaction and competition. The community is what makes the game good.
But it doesn't make sense to see other players from other races while exploring! A war is going on!
I thought the point to Elder scroll games was to make your own story, your own end game. Who is to say that you aren't one of many who hope for peace in the war? So you choose to interact with other factions, even if it doesn't mean to quest with them, but instead being able to talk to them at least, without their villages becoming deserted wastelands. Also, it doesn't make sense to be able to recruit another race into your guild, when you can't even see them.
How can we fix this?
My idea is not fully complete yet, but I am still focusing on different aspects and hope to get feedback on how you think this could work. When you're on a quest, you have the right to explore other territories. If you happen to cause havoc in the enemies territories, pvp will activate and there will be a bounty set on your head, encouraging players in that village to kill you. An icon will be displayed above your head, notifying players that their village is under attack by you. For the player who kills the the person with the bounty will receive a small/medium reward payment and XP. Not to mention there will be guards and reinforcements around your village to help, by drawing your weapon you will alert guards.
What happens if someone wants to troll villages? In high numbers as well?
People who troll will get tired of dying and the result will be degrading their armour and a long journey back from another wayshrine. I would recommend an instanced jail level, where if you consistently attack a village, you will be jailed for a period of time or you can bail yourself out for a pricey fee. Since pvp is primarily based in cyradil, for this reason anyone griefing should be held prisoner, not to mention it is also a nice feature that would go with the lore. This also opens up a lot of possibilities to theiving, pickpocketing and other stuff.
What if a high level player comes to our village of low level players, they would destroy us!
Level won't necessarily matter since anyone can pvp at any level in Cyradil as stated in the DEV video and still have a chance, plus your town will have npc and greater numbers to help you.
Wouldn't this interrupt our questing?
Not necessarily, a player cannot come in and directly attack you, PVP will only become active if the player happens to get caught by an NPC when drawing their weapon, they will react to it and a bounty will be set on the players head. After being caught, the player with the bounty on there head won't be able to attack any other player, unless the defending player attacks them. You could leave it to the NPC's, however, the defending players will have a choice to attack the bountied player, and the bounty on their head will encourage players to attack the bounty in greater numbers due to the reward.
Wouldn't players PVP in towns instead of Cyrodiil?
No, I wouldn't see this happening because Cyrodiil will be the main place for PVPing and players will have a "choice" to kill the player with the bounty on there head. PVP won't take place unless someone has a bounty on there head and no one will be able to attack each other unless someone is causing harm to their village. The bountied player won't be able to attack anyone unless they are provoked whilst they have a bounty on there head, thus PVP will be unfair in towns due to the unequal numbers, which it should be, to discourage players from trolling while still being able to explore and interact with players.
Why is there a need to see players from other factions?
The player interaction aspect. It may not fit fully with the lore, but it would make the game more enjoyable and homewtowns won't be left abandoned. More likely races will stay true to their terretories and remain there most of the time if they aren't exploring, thus if there is only three races that you can see, most other territories will be left as empty villages. It will also bring other opportunities and posibilities to the game such as trading with the enemies.
I'm open to all feedback and remember, this is just an opinion. I'm in no way bashing the game, i'm just stating advice that I feel would potentially make the game better.