Oblivion did flesh it out, (...) it's just less obvious.
A few examples of Nibenians who look down upon Argonians are not a fleshed out culture, they qualify as comic relief at best. The existence of Nine has been known for a while now, but we still hardly know anything about how they are worshipped or what it even means to worship them to the Imperials. Romans glorified their legions, but how do Colovians and Nibenese view their legions? There are no mothers who weep for their sons. There are no fresh recruits being trained. The PGE and Morrowind suggest Cyrodiil is an Empire of traders and merchants, but where are they in Oblivion? Where does their economy get all the income from? Everything suggests the Empire is milking it's province yet you see nothing of it in Cyrodiil.
I could go on and on about the missing basics, but why don't you tell me where is all this background on Cyrodiils culture in Oblivion. Perhaps I took the wrong exit in the sewers that lead me to the cartoon version of Cyrodiil.
It could happen.
Aside from that, Morrowind's politics involve five Great Houses of contrasting ideals constantly clamoring for control over the nation, often violently. Cyrodiil, on the other hand, has two cultures, even if there wasn't much room to depict a contrast, and I doubt it could be anything like in Morrowind anyway. Cyrodiil is more united, or at least less divided, than Morrowind; it has to be, or else the Empire would have fallen apart. The counts don't need to meet or bicker, because they all have their own domains given to them.
Cyrodiil had two cultures that were described as almost diametrically opposed in all areas. Yet you doubt that there will be any contrasting ideals? Right.... I clearly can't argue with that. Perhaps you didn't notice but the Empire was falling apart only 6 years ago in Morrowind. Cyrodiil isn't the land of Sunshine and Harmony that was shown in Oblivion.
Neither are the people who inhabbit the land of Sunshine and Harmoy natural. You just have to look at medieval history to see that a feudal system where people are given complete control over an area in return for their allegiance to the King is anything but peaceful unless there is a strong, competent King on the throne.
Without an heir to the throne there will be generals, counts, politicians and just about everybody else with a grain of ambition look for a way to get higher up. Yet in the land of Sunshine and Harmony these people pull up their shoulders. If they did it because they expected the gods would appoint some one, then we'd have the scraps of culture. But they didn't even do that.
I would summarize this as a lack of depth. Nobody gave a second thought to what Cyrodiil would be like if it was a fantasy world with real people. Not just the backdrop to a series of unrelated quests lines.
And while I would have liked to see some politics regarding the Elder Council, I suspect that a lot of the things that they meet about happens behind closed doors anyway, especially during the Empire's rather fragile state.
Had the devs set out to do such a thing, I'm sure that wouldn't have been an insurmountable difficulty. Ceasar had no problem at all marching his centurions into the Senate either when he declared himself dictator for live..
Morrowind had no shortage of bigoted citizens either.
Unlike Ottus however their attitude didn't make them stand out as being abnormal. It was part of the group of people they belonged too. Another thing Oblivion lacked.