I feel your pain. I find it so hard to play Dunmer in Oblivion. They do seem watered down. They were complete badasses in Morrowind.
You know, I think I've worked out what's changed. 1) They don't swear at me any more. 2) They don't act condescending and hostile because I'm an outsider. 3) There's no Dunmer culture in Cyrodil. It's the
Imperial province for a reason. 4) The Dunmer in Oblivion were Cyrodilic Dunmer - they've been integrated. They're nothing like the Vardenfall Dunmer. 5) I'm watching you, scum.
I think that just about sums up my dissatisfaction. Although, to be honest, it's probably a good thing it's like this in Oblivion. I would imagine it'd be strange in the extreme to see Morrowind culture being ported to Cyrodil. Slightly lore / immersion breaking I guess. Even so, my last save game just got irretrievably corrupted, meaning I had to start again. I chose relatively speaking the same build, but with a Dunmer instead of an Altmer. For starters, the Dunmer has the advantage because the gameplay is now more challenging with the neutered magika output. Another bonus is that my character no longer looks like someone submerged it in a vat of fake tan by its ears. That's a pretty major point actually... Orange elves svck.