Well no matter how much time and dedication I put in the real world I'm not going to become a god because I am restricted by the laws of reality and the same applies in a fantasy world. Just because you run around and get good at using spells and swinging a sword doesn't make you able to become a god because you are restricted by the laws of reality of the TES world. You can't just do ridiculous things just because you want it, that's the realm of modding. Otherwise it degrades the TES mythos if they purposely let you become god-like. Sure, you can become extremely powerful and become the most powerful person in the world but that's not god like and as long as your not flying around Skyrim laughing and destroying everything and there is nothing anyone can do about it. Your powerful but if say, a legion of soldiers come after you to capture you, you either have to flee or get captured, it's not realistic to just wait for them and then annihilate them all, that is the realm of a god...
Didn't think I was going to post in this but I will now.
First, my take on level scaling, which is kind of what Morrowind did. There should be enemy classes, such as wildlife, mythic, daedra, human, mage, etc. Each one of these classes have levels within them that when we reach that level, they become added to the mix of random generation with an EQUAL chance. For instance, at level one, wildlife just has dear and wolves unlocked, with a 50% chance an enemy will be generated as either one of those two. And then at level 5, mountain lions. This drops the probability to 33%. Once this system is in place, regions can modify the probabilities. For instance, a mountain region increases the mountain lion chance by 10%. So, if you are not at a high enough level to unlock mountain lions, you won't see them even in this region. But come back later and there may be an over abundance of them. That goes for all the classes.
As for the whole god debate...I want to point out something that has already been noted. In TES Lore, normal mortals have achieved legendary status. Read the book about the battle between KW and a battlemage (forget the name, haven't touched Oblivion in years). It has KW summoning hundreds of undead and the two mages unleashing storms of magic as the book describes. Tiber Septim was a mortal who became a God. Nerevarine has been said to be a demi-god. In-game does not match up to lore currently and there is plenty of room to close the gap.
Now about realism...no matter how much dedication someone puts into something in the real world someone will not become a god? I disagree only by using God as a relative term to the normal person. For example, guitarists. Steve Vai, Antoine Dufour, John Petrucci, and others are God's relative to human.Yes they aren't a divine being. But compared to others in the world, they are the best. They can out play near everyone. They are Masters of the guitar skill. Another example is in mathematics and engineering. Nikola Tesla dedicated himself to his practice and became a "god" compared to normal humans. He was capable of things we still cannot replicate to this day. Hitler was a master of Speechcraft, able to manipulate an entire nation to follow him freely. No normal human could do these things unless they put in the effort to become great.
So in Oblivion, when I became a Master of Blade, I very well should be able to take on the average guard with ease. Even multiple ones. I have worked for it. Their level should stop at 7 or so but in their class "elite guards" can be unlocked to keep up difficulty. Now, against these elites, I should be able to take on a few at once with ease but after that it should become a challenge. Now, when we come across Dremora, again, I should be able to take on many average ones with ease because, relative to the world, I am the best. I am god-like. But higher ranking Dremora should provide more of a challenge, to a point.
Mastering Destruction shows that my character has put in the work and dedication to understanding that side of magic. If the lore has MANY instances of god-like uses of magic by normal mages, why can't my character if he too has worked hard for it? Personally, in every game, I feel like my character is a puss because i read stories of these great uses of magic, yet I can never do it. There should come a time that I can even approach upper-classed Dremore and not fret. If I have leveled up enough to have the magicka reserves to fly and launch overly-powerful spells (without using glitches) then why can't I? It's part of the magic system, not the realm of a god. Lore shows it's possible. And my Master of Destruction should be quite capable of frying many enemies at once because, relative to them, he is like a "god."