I havent played Oblivion for more than a few hours, but yes. its better than Morrowind. There are so many other improvments than graphics, that I cant remember them all. They reintroduced "click on map to fasttravel" from Daggerfall, wich I think made Morrowind lose its appeal to me, as I hate the "run fetch" type quests wich span across several playzones. They make you run for half an hour, and the reward aint that good.
They also simplified combat a whole lot. Now you can fire off spell without taking off weapons. Just press C, and you will fire off a spell thats been made ready. You need to block manually tho, but since its on the right mousebutton, it isnt all that much of a biggy.
NPC's now got a 24/7 AI. This means that no matter what your own actions are, they will go about daily business, like talking to eachother, steal, eat, sleep, work and wander about. I had to wake the innkeeper inn some town to get a room for the night, and he wasnt to pleased (you can see it on the facial expression wheter they like you or not).
With a powerfull PC, I doubt you find a game today with better eyecandy. Travel to a near mountaintop, and you can see for miles, even small hamlets or the spears of a great castle. Since I need to run with pretty low resolution and charachter view range, I have a hard time spotting critters before they are on top of me. But with I reckon those can be spottet from afar aswell if you got the proper juice in your PC.
As in Morrowind, you can undertake a number of quests at the same time. But now you can manually chose wich one you will make your "main" quest. This quest will have waypoint show up on your compass and map, giving easy information as to where to go next, also who to visit once the quest is done.
There are still a few matters that I dislike in Oblivion, as in Morrowind. One is that you cant realy determine the difficulty level of the region your in vs level of your toon. But I guess you find that out soon enough. And also I dislike it when you are on a quest and you get aid from other NPC's. It makes battle pretty difficult, as you tend to be hitting your brothers in arms when close combat ensues. I had a quest for the fighters guild to deliver weapons to a mine. once there, the quest changed from simple run and deliver, to join forces with the people there to rid the mine of goblins. The other guys ran off in several different directions and one got himself killed. Wich the master of fighters guild didnt like all that much. I followed one of them, but he kept getting between myself and the mobs most of the time, and I think I hit him aswell when he got in the way. But adds to realism I guess. Good thing I didnt use my fireball