Yeah, but the games do sometimes miss the boat. In Oblivion, the developers wanted there to be a lot more discernable differences in attitude and bearing between the people in Nibenay and the people in Colovia. They wanted to have some political strife going on between the two parties. It all sounded very interesting, especially when you throw a dead Emperor into the mix, but it ultimately got cut. Cyrodiil, lore-wise, is apparently rife with racial and territorial tensions (as befits a melting pot), but the devs just didn't feel like they could portray that right at the time.
That strife did end up making it into the lore, though: the original Titus Mede, for instance, was a Colovian warlord. When he took over as Emperor, the Nibenese part of Cyrodiil originally wasn't too thrilled about it.