While Oblivion is just generic fantasy terrain, Morrowind has incredibly varied and unique graphics.
Oblivion's leveling system is just plain STUPID. I mean, one of the fundamental parts of an RPG is to make your character grow in strength. In Oblivion, there will never be regions you are afraid to enter because you are too weak, and when you have reached high levels, every single bandit has DAEDRIC armor and weapons! That is just plain stupid!
Another major flaw of Oblivion is the Fast Travel system. Another fundamental part of RPG gameplay is to actually travel through the lands. Begin in one city, do some quests there, then explore the lands until you find another town, be there for a while etc.
Don't get me wrong, I like the Fast Travel feature, but I do NOT like that they are activated from the BEGINNING! RPGs are about exploring the lands, which makes this "feature" horrible!
Morrowind, on the other hand, while having a travel system, encourages traveling in the lands much, much more.
Of course Morrowind has its flaws as well.
The graphics are actually very good in terms of terrain and overall graphics design (in my opinion). The character graphics, however, could have been done much better.
Another flaw is the combat system which feels really stiff when in lower levels.
Other than that I love Morrowind, which is a great game.
As is Oblivion, but it has its flaws.