Morrowind was kinda promoted as a graphic demo for the original xbox too, but it ended up being not such a bad RPG, it just was a little bit too boring.
I'm sure bethseda delayed Oblivion to polish its gameplay and make sure they would release an RPG worthy of the elder scrolls legacy.
I heard they invested a lot of resources in the NPC A.I. to make it more real for the player to wander in the world of oblivion
