It all adds to the immersion.
Do people need to be staring at something that looks exactly like real life to have imagination anymore? I remember when I was younger, I immersed myself in simple sprite based games like Mario :\
I'm not saying everyone can or should be like that, but come on. The graphics look fantastic! Just think where gaming was only a few years ago! This game looks incredible compared to things we used to be able to see in open world games, but a few games decide to focus more on incredible graphics, and suddenly you can't accept anything less?
Oblivion looks as realistic as it needs to for any "immersion" or role playing purposes for me.
Everyone always says "GRAFICKS > GAMPLAEY LOL", but everyone complains about graphics the second they see a sub-par texture? >_>