Ok, so this is probably an unfair review. I've only been playing Oblivion for about three hours and I'm still a level noob. But if there was any one game I had to pick to really show off the power of the 360, this would be it. I cannot describe to you how good this game looks. No video preview will really do it justice.
Let me give you an example. Early on in the game you have to escape from a prison. After fighting through a small dungeon, you exit into a lush forest setting, and the result is something akin to Dorothy landing in Oz. The grass sways in the air. The leaves sway in the air. The ambient sounds are dead on. Everything about this game screams detail.
Maybe it's just that I started my RPG life on games with tiles that didn't change, but I'm really surprised at how immersive this game is. One nice change for me (and this is coming from my last RPG being Knights of the Old Republic 2) is the use of time. The sun rises and sets. I still remember being shocked at the colours in the sky when I played last night as the sun was setting. Along with day/night cycles you have real weather systems. I've seen rain, which is probably easy enough, but I also saw just a general, overcast sky when I played last time. I swear the game "muted" the colours to match the change of light from the sky.
The engine is impressive, although a bit complex at times. I found myself fumbling for buttons a bit, but it is nowhere near as bad as Ghost Recon. I like how the compass will automatically switch pointers based on the current active quest. I also like not being tied to simple experience points for levelling up. Instead you have to get your skills (all of your skills) up to a certain average.
Two things stand out though as minor flaws. Faces. For some reason, every face looks puffy and a bit bloated, like everyone is suffering from either overeating or hives or something. I mean, the faces are very detailed... but just... puffy. Not quite sure why. Secondly, and I've seen this on a few games now - it really bugs me how hard it is to read small text. I don't have a HD TV (I need to add that to the wishlist! ;) but I do have a good size TV. (36 inch Sony WEG) I wish developers would handle text better in general. This isn't a complaint just for Oblivion though, I've seen multiple games with text issues.