Personally I think it should be between options 1 and 2 on the poll, while some powerful items may have been a little too easy to access as a low level character (the Sword of White Woe in Balmora and the Redoran treasury was a cakewalk once you knew where the key is, as well as various items in shops) I feel that it was generally well handled in Morrowind, of course it needs some balancing however Oblivion took it way too far to the point that they took a dive off the cliff. Does anyone remember the Khajiit you can befriend (forgot the name of the Khajiit and the town) in the town you pass on your way to Balmora from Seyda neen? I would love to see more aspects like this where certain people can give you hints as to the location of items worth stealing or even overhearing conversations between people that hint at locations that might have items of worth. I remember in Oblivion hearing rumours that led me to believe that there was loot worth stealing however upon investigating such rumours I found them to be false, 2 guards talking about some nonexistant mithril greaves stashed in the barracks and the aylied collector who supposedly has one of the largest collection of Aylied artifacts dispite the fact that none of them appear in his home (I seriously thought this was hinting at loot worth stealing instead of a quest that leads you on a few dungeon crawls) in the Imperial City.
What are your thoughts on the subject?