From what Bethesda has said the two major Morrowind complaints (the implimentation of melee combat and generic NPCs) are being fixed.
Since Tribunal and Bloodmoon did a decent job with having less generic NPCs I think they'll definately pull it off.
NPCs in Oblivion it sounds like have full schedules and such. Of course Morrowind originally was going to have that too until they felt it was too much work for too little gain, now it seems they've realized how much people want it.
Oblivion, from what info there is, occurs in Cyrodiil, the capital of the Empire of Tamriel. (the continent the TES games occur on) There's plenty of outlying countryside outside of the Imperial City and small villages it seems.
The plot has something to do with political turmoil (it's been hinted that something similar to the Great Houses of Morrowind will be in the game) as well as an invasion of the Daedra (demons) from Oblivion.
There's ridable horses in the game too, like in Daggerfall.
Anyway despite added NPC depth I doubt there's going to be a party system in the game. The TES games are about you being on your own. They might add some mercenaries like in Tribunal and give them some personality and related quests, but that's just speculation.
