Morrowfall *sigh*
Truth is, I agree with arguments in both camps. Daggerfall was awesome and by and by the best game of the series as an RPG, while Morrowind introduced some much needed character and variation.
In a perfect world, Bethesda would have continued to experiment with and improve on various generation techniques building up on this new, necessary foundation. They did some with Oblivion, true, but it was next to inconsequential. Especially when placed next to all the sacrifices the game made in terms of RPG mechanics.
I kind of like the current skill system of TES, by the way. First of all, it's a bit of fresh air within RPG games ("a game claims to be and RPG and doesn't copy D&D at least in part!? Preposterous!"
) and it makes more sense from a real-world perspective. Removing XP counters and a large chunk of the focus on levelling helps make TES a bit of an RPG-lite series with a different focus then most others. In short: It fits much better then the traditional XP system with what TES offers, imho.
Character progression, for me, is always a means to an end. Only passingly an end in itself. Otherwise you end up in the stale MMO or diablo-like environment of eternal non-satisfaction and purely kinetic pleasures *shivers*
Like MM, Oblivion's sacrifice of half the RPG elements Morrowind had (which was already half of those Daggerfall had) in my book caused it to cross a threshold where the actual RPG posibilities were too limited to live up to RPG pretentions. In effect it fails as an RPG. Literally. It tries, and fails.
Also take note of the distinction between various forms of roleplaying. In the past, roleplaying meant having the character assume a role, and having the game actually provide this role and relevant feedback to it. These days a younger generation seems to think of roleplaying as 'play pretend', which pretty much misses the point if you ask me.