I've spent 4-5 hours on this game now, though I haven't really started the main quest. These are my first impressions in roughly the order that I came across them.
The graphics are quite good. I particularly enjoy the view distance, as it allows you to sit on a ridge line and see distant castles and mountains. It's much better than the fog out of which everything appeared in Morrowind, even if details are lost in the distance. I'm using an Athlon 3000+ with 1GB of RAM and a GEForce 6200, with many of the visual options reduced, but the game still looks far superior to Morrowind, in my opinion. The framerates are good enough for me at 800x600.
The options for creating the visual appearance of your character's face are detailed, almost to the point of absurdity. I'm certain that there must be over a hundred slider bars and options in cusomizing the appearance of your character. It's certainly a far cry from Morrowind's ugly faces.
The options for character creation are a slightly simplified version of the system used by Morrowind. There are fewer skills, and their progress is lumped into "apprentice 0-25," "journeyman 25-50" and the like (yes, my exact skill point values are probably off, for the extremely nitpicky folks among you). Other than that, it's almost identical.
The dialog system is much improved from Morrowind in that it went back to Baldur's Gate-style canned responses. There is a persuasion mini-game as well, which; though I appreciate Bethesda's effort in attempting to make dialog more entertaining, fun, and realistic; frankly sucks.
The gameplay itself is almost identical to that of Morrowind. That means that the combat is relatively boring and leaves little to strategy. Sneaking and stealing are more exciting and fun in both Morrowind and Oblivion than is fighting. Innovations include the ability to cast spells without having to raise one's hands in advance and the ability to manually block using the right mouse button to raise a shield or put a weapon in defensive position. The innovations are a marginal improvement, but it's still basically the same as Morrowind in the basic gameplay.
Quests seem to be more slightly more creative or more cleverly disguised fed-exers. SPOILER -- In one quest, I was sent by invisible people to find an invisible wizard, get the reversal spell and cast it in the center of town. There was some fun dialog and the added challenge of having to track down the invisible man to fetch something and bring it back to other invisible men. --
All in all, my first impression is that it is Morrowind with better graphics, better dialog (except for that insipid speechcraft mini-game), and better quests. If you liked Morrowind, you'll probably love this game. If you hated Morrowind, you will probably not like this game. If you thought Morrowind was alright, but dialog or boring quests were the primary things that kept you from enjoying the game, then I would certainly recommend giving this one a try. If you haven't played Morrowind, but you like other RPGs, I'd recommend giving this a try, based on what I've seen thus far.