Ultimately, I think vanilla Oblivion (I played the 360 version) is one of the worst sequels I have ever played and actually a fucking awful game. I'm talking a 3/10 turd that would have gained little attention had it not been the sequel to Morrowind. The mechanical issues are well known and I won't go into detail as to why the gameplay sucked but even in terms of graphics it wasn't as good as people expected it to be with textures in the distance being hilariously low res on PC and 360 alike. Characters looked awful, the art design was utterly generic and everything just fucking glowed because of an inflated use of HDR or bloom or whatever. It was just ugly as hell.
This isn't really the hill I want to plant my musket but this is an incredibly bizarre complaint considering your premise. Is Oblivion ugly and full of potato people? Yes. But have you seen Morrowind? There's really no argument here. The shift to full 3D was not kind to the series and Morrowind was the first casualty to the cause.
I mean, come on:
There are 2 kinds of people. People who played MW when it came out first. And people who played Oblivion first.
People who played MW first like me were doomed to be disapointed by Oblivion. Others got to experience Oblivion in ignorant HD bliss.
There's a third. There are those that played Daggerfall and don't think that Morrowind was the bees knees.
The thing with the Elder Scrolls games is that they've been cutting and streamlining the series since 1996. Every release has less than the one before. People love to complain about how Oblivion is missing all these amazing features without realizing that Morrowind had just as equal a gutting to mechanics as its predecessor. I was grossly disappointed in Morrowind with the decreased world size, removed skills (climbing in particular!), horrendous enemy/combat design (how quickly people forget cliff racers), non-random dungeons, static and choice-less ending etc...
After you've been through a few Elder Scrolls releases, you learn Bethesda's shtick. No sequel is going to be like the prior one with greater emphasis given to world creation, pretty graphics and streamlined gameplay. When you take that into consideration, Oblivion and Skyrim are hardly the harbingers of the apocalypse.
In terms of the OP's prior thread on companies ushering in a golden age of RPGs, I'd agree that Bethesda is not a spearheading force for that resurgence. They make a very different kind of game, which I enjoy, but that eschews so much of the role-playing genre that I'd hardly consider them stellar examples. I like them and enjoy them but they've always been leaning towards more action-adventure.