It just feels smaller because of Oblivion's infinite view distance and faster running and the general bowl-shape of the game world (surrounded by invisible barriers). Vvardenfell is approx. 6 sq. miles large whereas Cyrodiil is approx. 8 sq. miles large.
Seriously? I thought the game area was larger in Oblivion... Huh.
Anyways, combat is improved. A lot. You ALWAYS hit the target, there's several different 'power' attacks you can perform, along with some other stuff. Magic is also improved. There's no chance to cast a spell successfully. The spell will always be successful.
Stealth is also improved. You actually need to sneak in the shadows to be detected, the weight of your boots affects your sneaking, there's critical hits for attacking when sneaking, and some other smaller things.
There's no people that offer enchanting and spellmaking -- instead, you must
Spoiler join the Mage's Guild and gain access to the Arcane University to enchant items and create spells
which I find is a pain.
Of course, the graphics are much improved. However, the animations are still a little bit... weird. Better than Morrowind, but still.
Some of the awesome Morrowind armors are gone, such as Bonemold, Dreugh, Dragonscale, Newtscale, Chitin, and Netch Leather. Also, there are no Medium Armor or Unarmored skills.
Lockpicking and Speechcraft are minigames now.
Everything is fully-voiced.
Lots more.
Personally, I still enjoy Morrowind more. I just wish I had it again
. But, I recommend this game nonetheless.