Story and depth.
The first aspect that needs improvement is the plot. Oblivion's story felt to much like a hollywood popcorn flick to me. Some demigod of a hero, jack of all trades and master of them as well would save the world from some evil force. It's been done a thousand times, and while it's not bad a bad premise, I would like to see something a bit more original in an eventual TES V. And while we're on the story, the players actons need to have a real impact on it. Oblivion was an action game, and to me, there wasn't to much room for actual roleplaying in it. I mean yes, if you sue your imagination you will be able to roleplay in the game, but it won't matter. The game will be the same it was the last time you played. The reason is that the choices you make don't matter in the grand scheme of things. This is an area where I felt Oblivion was sorely lacking. Choices are completely meaningless if they don't have consequences. They don't need to be immediatly noticeable, but they need to be there. Fallout 3 was a step in the right direction though.
Secondly, depth. One thing that bothered me in Fallout 3 was how two dimensional the companions were. The companions were obviously a major aspect of the game, but apart from having different personalities and abilities, we didn't get to know them at all. Sure, it wouldn't be natural for my player and a companion like Jericho to be best friends, but after risking our lives together for a long time, a certain mutual respect or friendship depending on the kind of character you're playing is to be expected. The companions were so udnerdeveloped, but they had the potential to be so much more interesting. Some backstory, maybe meeting someone they know from their own past adventures and things like that would make them a lot more than a one-liner spouting meatshield. If they were well developed I think companions could really add to the experience in a TES game. Anyone who knows what games I enjoy aren't going to be surprised when i recommend looking at Bioware in this aspect. Kotor, Mass Effect, Neverwinter Nights. They all have companions that you gradually get to know and care for. And here we get to one of my main complaints with Oblivion.
I didn't care what happened to a single NPC in Oblivion. In Fallout I did get somewhat more attacked to certain characters, but not by much. In fact, the only NPC's I really felt anything for were the merchants, as they took care of all that heavy loot for me.
Choices and Consequences.
This is the main thing that put me off with Oblivion in particular. For a choice to have any meaning, they need to have consequences. They don't have to be immediatly noticeable or have a major impact. But they need to be there, and they need to affect something. Falout 3 did better in this respect, Megaton was excellent, though it really didn't feel like it had much of an impact beyond losing some merchants and that one cow. Hell, the main merchant in the town even survived, so nothing really changed. Megaton blowing up was more of an inconvenience than the major event it should've been. Megaton is one of the main trade hubs of the Capital wasteland, and you'd think people would react more to it's destruction that simply mentioning it casually in conversation.
The point I'm trying to make is. When chocies don't have any impact, there's no reason to make them. How I complete a quest doesn't really matter when the end result remains the same.
Customization
To me, this is the most important aspect of an RPG by far. And having a lot of choices when creating your character is for me, personally, a delight. I love creating characters and deciding how they should look, how their hair looks, what they wear etc. Oblivion did this fine, though most characters looked hideous without some cosmetic mods. Fallout 3 was a lot better, but not perfect. I liked how facial hair was possible, and I see no reason why it wouldn't be in Oblivion. Facial hair is an obvious choice for customizing a male character. Another thing I would like to see is being able to customize your characters body. It doesn't make sense for everyone in the world to be bodybuilders. A mage should not have the same physique as a warrior. Being able to adjust your characters height, weight and bodyshape would go a long way in terms of character customization. Saints Row 2 did it very well, and has one of the best character creators to date.
Armor is also a point here. In Morrowind, you had numerous armor slots so you could mix and match armor pieces to get the look you wanted. In oblivion this was gone, and I see no reason for it to be removed, unless the goal was to make characters look more bland and mass produced. If you could do it in Morrowind, then surely you can do it now as well.
Gameplay
Before Oblivionw as released we were promised an extremely advanced combat system and proper Radiant AI. We didn't get either of them. The combat was basically button mashing with an occasonal right click to block. And the AI was dumbed down far to much.
I'll adress the combat first. The combat was far to simplistic in my opinion. Games like Jedi Academy that are far older and far less advanced technically still made sword combat far more advanced and far more fun. The combat in Oblivion was basically button mashing, and the lack of recoil and variation in the guns made Fallout 3 a bad FPS. Basically, the combat needs work, especially in games as action focused as Bethesda's. I've said that the games need more depth and story, but if the game's main focus is action then that's not a problm in itself. But in oblivion's case both the story and combat was lacking, and so the game didn't do reall well in either aspect. And it's obvious that if they had pulled of one aspect really well, then some weaknesses in the other part could be easily forgiven. But when both parts are just as simple and bland, then the end result is an average game, with unrealized potential for greatness.
Then the AI. I know the Radiant AI was dumbed down to prevent NPC's from killing each other off inside the town while you were out looting dungeons or helping Khajit children out of trees, but was it really necessary to make the adjustments so extreme? Yes, the NPC's had schedules, they ate, they slept and they did their jobs, but they still felt lifeless. If I chopped down some poor fellow in the street they would run away or fight me, but that was it. I also found it a bit odd that someone was willing to kill me over stealing a piece of bread, but then again, they did that in Morrowind to.
The problem with NPC's killing eachother is easily solvable. Guards in the city could confiscate weapons at the gate, or grab and restrain disorderly citizens. Who may or may not break free and fight back depending on various stats and conditions. Making all the NPC's robots is not the answer.
The mounts in the game were also incredibly clunky to control. And as seen in games like GUN, it's possible to make horses behave so much better. Some variation in mount types might also have been interesting, but may not have fit in to the setting to well.
Now this poitn has been long enough, I'm sure there's something I've forgotten to mention, but I'd like to see some discussion on this. We all want the enxt TES to be as good as it can be, and we know Bethesda are able to do it, so why not do our part and hope they take notice?
And I'm adding a quick list of some of the main things I'd like to see:
1. More customization. Hairstyles, Beards, Tattoos, Proper skin shading (oblivion's skin shading was awfull), piercings/earrings
2. More advanced combat, dual wielding would be very welcome. Jedi Academy, while an older game is a great example.
3. More variation in weapons and armor. Morrowinds armor system was perfect, and getting crossbows, throwing weapons and spears back would certainly be welcome. And having the spears behave as long swords is not good enough, you stab with a spear, you don't swing it around like a madman.
4. More character customization. Saints Row 2 had the percect character creator. Changing body shape, height and weight would go a long way towards getting some variation and making the player and NPC's feel more real.
5. Bent legs for the beast races!