The other problem are bland characters: in most RPG's, the companions make interesting characters to explore and maybe the main villain may be interesting as well. TES however doesn't relly on characters and FO3 and New Vegas (as well as mods) showed that companions and TES gameplay don't go together: in other RPG's you have a made out story you follow and your character's personality and wishes can easily be guessed and companions can understand you thus the interaction with them is easy to accomplish. But in TES where you have so much freedom and it is impossible for a companion to know what you think and want, the interactions can be hardly be made well. Companions as characters can't be made interesting without the game giving your character a personality, something I wouldn't like to have (for example, how could any character in OB know that my character is an ancient Ayleid mage connected with Oblivion and who wants to become a Daedra lord? Interaction with someone who follows me everywhere is destined to be immersion breaking for me).
So with usual RPG system, TES can hardly have memorable Quests (in quantity that fits its epic scope) and characters. So thinking about how to get better quest to interact with the world and getting better characters, IO came up with something that I like to call "Quest-arcs".
In short, a quest Arc is a series of quests connected to a faction, region (plots and schemes between nobles) or a character (like finding out history of someone's family or returning a noble his rightful place). Those quests are connected with one another, both serially (complete quest A to complete Quest B), through branches (depending on how you completed quest A, you may start Quest B or Quest C) and through additional quests (Quest D is not required to be completed but if you do, you get more info and it will affect other quests in some minor way). Since all those quests together make one big quest, you have few big Side Quests that take few hours to complete and because of the scope and potential complexity, player will remember them. If there are more then few paths, replay value is also greatly increased.
And how does this affect the character problem? Simple: since all quests are connected, you don't spend time with the quest giver until you complete a quest: you spend time with him until the Quest arc is over and through multiple quests you can find out about the history, personality, motives (and everything else that makes characters a character) of every character involved in the Quest Arc. Where a small side quest could only give you a glimpse of one character, a Quest Arc spawning few hours could give much more IMO.
I am sure this is not a perfect solution and that it ain't really anything unique. The biggest flaw is the fact that you need to spend more resources on them then on side quests (tough with Radiant Story in TES5, this may not be an issue any longer because you don't need to manually craft regular side quests anymore). And lets not forget the Quest Designing phase if arcs are to be complex...
So, what do you think: what is bad in the idea, how can it be improved, what is unrealistic? Should some of them be connected with MQ? I am interested in this as both a fan of TES as well as someone interested in Game Design Philosophy.