But we have to remember, this is what happened in Infernal City, wich is not Bethesdas work, so they might just continue the game after the events of Oblivion instead of the events of Infernal City (wich I hope for).
I don't like the Infernal City that much, the Dunmer would be the first to get their independence when they sensed a weakness in the empire's power (Oblivion Crisis, no heir etc.) so to lose there homeland and stuff didn't really fit in my eyes.
However, at the end of Oblivion it makes sense that the empire falls apart or is in chaos. So Dunmer would become independent, Altmer become independent and conquering Valenwood and form the Aldmeri Dominion fits so I wouldn't mind it to happen http://www.imperial-library.info/content/pocket-guide-empire-first-edition-aldmeri-dominion. The empire already has limited control over Black March so the Argonians would probably take back there lands. A war between Morrowind and Argonia makes sense without the empire keeping the peace, however Argonians are fit for guerrilla warfare in the swamps, so they wouldn't conquer Morrowind except for some swampy southern Dres territories if they would conquer anything at all, it wouldn't be unthinkable if the Dres actually advanced into parts of Black March. If the empire culdn't conquer it, they probably can't do it either but they can take some land there.
Elsweyr becomming independent during all this chaos would be logic, Hammerfell too I guess.
So that would leave the Empire only controlling Cyrodiil, Skyrim and High Rock, with local powers getting more and more power and autonomy because of the weakness of the Empire.
That was basically what I expected to happen after Oblivion even before the Infernal City was even announced, so if Bethesda is going to ignore the Infernal City, or parts of it, I would have the same 'future of the Empire/Tamriel' prediction. In my previous post I was actually changing the Infernal City lore to my vision (Dunmer reconquer most of Morrowind so the whole invasion thing has basically turned into a war with he Argonians) rather than basing the future of the Empire/Tamriel on the events of the Infernal City.