there was something frightening about walking into a Sixth House base in Morrowind; red candles, zombies, a sense of entrapment, I feel like I didn't get that vibe from Oblivion.
I got that vibe from fallout 3, so I know Bethesda is capable of doing such.
Indeed, while oblivion had gore and nearly third of the game happened in oblivion dimension, it wasn't a scary game at all. In fact one could call whole oblivion dimension quite boring and tedious place. Only in the ayleid ruins we could talk about any sort of horror atmosphere, but even when the game offered the perfect setting, the gameplay mechanics ruined it. Yes I'm talking about level scaling. There wasn't any sort of sense of danger present because game scaled everything on your level so that you wouldn't run into anything too dangerous.
Morrowind however was a mysterious place full of excitement. Sixth house tempples, ashlands, red mountain, dwemer ruins, tombs etc..those were places that had this mysterious vibe, some of them were plain scary. Heck you never knew what you could find behind the next dungeon door.. The sense of wonder and discovery. Moreover there was so much lore in those dungeons. I loved all of it.