Actually both size and a full game world are possible, not necessarily a whole continent or a whole planet but they can go far bigger than now AND far more detailed.
For NPCs they should use "personality sheets" and the like, similarly to how the actors in Dwarf Fortress as controlled (I'm working on a suggestion but need a lill bit to iron it out)
As for the game world, while many probably wouldn't want to hear that, they could resort to random generation, HOWEVER not for all of it.
They could use "Islanding" for that. For example, on a big map the towns, settlements, ruins, roads and such are all hand placed. But there are "random generation islands" in between, for example, Forests. Within a forest all the trees and plantlife could simply be randomly generated either every time you visit them or at the start of evere NEW game.
And further within a randomly generated are can be a "set" island too, like a ruin within that forests, it's position and setup wouldn't change. However it could very eaily be done that the position of certain areas within a random area CAN change from game to game, imagine in one game it's in the middle of the forest but in the next new game it's towards the edge. That could make seeking for secrets a lot more interesting as they are never in the same place for two games and STILL have them in set areas.
A big thing that can be done with random generationa re deserts as they move and change over time.
So they could have:
-Randomly generated areas that change with every NEW game
-Randomly changing locations with every NEW game
-Areas that change over certain intervalls
-Random areas within a SET area
-Set areas within a RANDOM area
Though personally one thing that bugged me about Oblivion was the random content of ruins since it made exploring or looking for quality stuff on low levels pretty meaningless.