I do not understand why people say that Oblivion did not have less depth in the amount of dialogs and quests compared to Morrowind?
In Morrowind most of quest dialogs were text only, so they could alter them as they liked and add tons and tons of it to dialogs and quests, and then change and fix them in the last minutes without much ado, and so on...
In Oblivion, they decided to add voice overs, for each dialog line, and some of them were used for all the races, foe men and women.
In this trend they had put a sever limit on the amount of text they could use in a dialog, and it would not be practical to change and fix the texts extensively in the last moment, and so on...
The NPC AI and Dialogs were severely limited and they had to save time and effort for each line added or changed, so lots and lots of detail were reduced from AI responses and dialogs.
And when there is no need for voice acting for all the spoken text by NPCs, then if there is a lack of depth for NPCs, background life and dialogs, some modders can easily fix the problem:
Morrowind had a mod group, called LGNPC, or less generic NPCs, which added lots and lots of background and life details to all the cities and villages around the game world, and gave those NPCs a lot of small details, and emotions, and added lots of small to large quest lines to each town and village.
It added a lot of drama between the people, and made believable links between them and love, rivalry, treachery, and so on...
I like to see some such mod add-on in a fully voice acted game without breaking the immersion a lot.
So voiced dialogs makes it difficult for developers to make in depth life for NPCs, and makes it even harder for modders to add their effort to the job.
And I do not want to start talking about the problems that it causes for future evolution of NPC AI and dynamic dialogs and quests.