OK, I feel I have the time and the effort to explain this all.
The first thing we have to consider is the Oblivion was moved to the 360 very late in it's development cycle (I think something like 6 months before release). So, the engine is very very, and i mean
very unoptimized, even for the PC. The 360 was completely new, so they didn't have time to get used to it. RDR and Just Cause 2 came out at least 4 years after (I haven't counted or checked this) the consoles had been out; the developers have had a lot of time to play with making games for it.
Secondly, there is absolutely no http://en.wikipedia.org/wiki/Hidden_surface_determination (which basically only renders what the player can see), which would (probably) easily allow there to be open cities. Well, provided the engine was optimized. Not to mention the fact that all of these meshes were http://sites.google.com/site/oblivionpoinfo/optimization/pyffi), and had a high poly count. The next thing we need to consider is that nearly all the objects had collision, as in they could be picked up and thrown about. This sort of thing is very taxing on the GPU, which slows things down a lot. So adding all of this together, and the fact the game had to still render the rest of the outside world (in the closed cities if you go outside the land is blank with rubbish textures and no wildlife etc,you can see it doesn't bode well. Let's not forget all the high poly NPCs and armour and weapons etc.
Now, if we move onto the CPU. This has to keep track of all the NPCs going about on their day to day business, and if hostile NPCs and creates could run into the town willy nilly, things would slow to a crawl. This is because the AI of Oblivion is very resource hungry (because it does a lot of stuff). Just Cause 2 does not have NPCs with schedules, that go about their daily business in a routine, and do other such stuff. Combat AI is even more taxing than the routine AI that would normally happen. Please note the reason why combat in cities in vanilla oblivion doesn't slow down is because there are not the extra NPCs/creatures from the wild that have just rampaged their way into the city. So this would tax the CPU too much, causing things again to slow down (even if the GPU wasn't suffering from all those polys; they are seperate and one will bottleneck the other, so if one is taxed too much, the whole things slows down).
So, the summation of all of the above features will one way or another cause a slow down.
The optimisation of software (the game engines etc.) has developed considerably since Oblivion, which is why consoles can do so much now, even after being 6 years old. So Skyrim should be able to have open cities, if BGS chooses to go that way and invests sufficient resources into it.
So, that pretty much answers it. Consoles are holding back games with their aging hardware, but the evolution (and considerable investment) in the software that runs on them will prolong their life for a few more years.
EDIT:
Well, it might be true that consoles do infact limits the game, but here is the inside scoop: live with it.
Bethesda wants money, however most pc-gamers download their games illigal. Then there is students like me who does not infact have enough money to buy a new computer, so if Bethesda wants my money; release it on console.
It is the same with Crytech, way to many people download their game and they dont earn enough money. Thats why Crysis to is avalible on both the Xbox and PS3 in March.
So if you do want an Elder scrolls game, there better be a company to make the game. That company needs money. They get way more money if they release it for consoles. So keep up the whining and [censored]ing but Bethesda still need money.
Please do your research before claiming it's more expensive to buy a gaming PC. Sure you can spend as much as you like on it, but you can play PS3 quality games on a PC that won't cost much more than . . . a PS3.