it just stops you from walking to every damn person in the bar until sombedy says something unique.
Interacting with people in a normal manner? *gasp!* Can't have that, people must be able to get right to their quest objectives ASAP, no delay, hurry, hurry! No waste time chatting with people to find your target like a normal person, there's the target right there, go get 'im!
Quest markers on the compass, a magicka-free clairvoyance spell that'll help you get around obstacles in between you and where the compass marker is pointing to, and now in-world arrows pointing right to the target like a "Right Here, Dummy!" sign. I bet it's not limited to NPCs either, but also treasures and enemies. Get a quest to search a deep dungeon for a long-lost relic? It's cool. Your compass inately knows where the dungeon is and where in the dungeon it is, clairvoyance will lead you through the correct passages, and the object will have a "Ancient Relic Here ->" sign next to it.
Am I playing the game, or is the game telling me how to play?
If the markers can be turned off, that's a good step, but as mentioned, the quests need to be designed without the assumption that you'll use them. If you need the markers to actually find the targets, then turning them off is no good.
Also FWIW, there are mods for Oblivion that make it so you don't know the names of NPCs until you talk to them.