When you level you get to raise the values of three attributes. The amount you can raise an attribute by depends on how many skill points you have gained in skills governed by this attribute (major and minor).
0 skill points grants a +1 bonus
1-4 skill points grants a +2 bonus
5-7 skill points grants a +3 bonus
8-9 skill points grants a +4 bonus
10 or more skill points grants a +5 bonus
It is never possible to gain more than a +5 attribute bonus when leveling up. Attribute bonuses not used at one level (or surplus points past 10 in the skills governed by an attribute) do not roll over to the next level.
For example, say a character has the following major skills (seven in total, listed by attribute):
Agility: None
Endurance: Armorer
Intelligence: Conjuration; Mysticism
Personality: Illusion
Speed: None
Strength: Blade
Willpower: Destruction; Restoration
Since his previous level-up he has increased some skills (see below, increase in parenthesis after each skill). When he acquired the 10th increase in a major skill, he qualified for a level-up. The attributes offered to him would be as listed to the right in the examples below.
Example 1
Attribute Skill Increases Bonus
Agility Security (2) +2
Endurance None +1
Intelligence Alchemy (10), Conjuration (1), Mysticism (1) +5
Personality None +1
Speed Athletics (5), Acrobatics (5) +5
Strength Blade (4), Blunt (4) +4
Willpower Destruction (4) +2
For those concerned with over-leveling or skill management this is not a "perfect" level-up. An example of a 5/5/5 increase (as mentioned in Efficient Leveling) for this character could be:
Example 2
Attribute Skill Increases Bonus
Agility None +1
Endurance None +1
Intelligence None +1
Personality Illusion (6), Mercantile (4) +5
Speed Athletics (5), Acrobatics (3), Light Armor (2) +5
Strength None +1
Willpower Destruction (4), Alteration (6) +5
Here only 3 attributes have more than the minimum +1 modifier, and they all get the maximum +5. Illusion and Destruction are the only major skills that have been increased (4+6=10), along with a total of 20 minor skills. No skills have been over leveled. Note that the last one of the increased skills has to be a major skill.
Best Answer
One of the main problems with Oblivion is that it doesn't have the same world depth that Morrowind had. Sure, it has dungeons littered about the landscape, and there's no shortage of adventuring, but there are not nearly as many factions. Morrowind had the 3 Houses, the Fighters/Mages/Thieves guild, the Morag Tong, the Imperial Cult/Legion, and I'm sure I'm missing some, all in addition to the main quest. Even then, some were mutually exclusive, making you really feel like you were in the world. If you got to the top of the Fighter's Guild, people reacted to you differently. They recognized you.
In Oblivion, you still have your 3 guilds, and you have the Dark Brotherhood. That's it. There are no other factions to join, and each one has somewhere on the order of 10-15 quests, including the little mini-quests at the beginning just to whet your appetite. It seems short. Not only that, but you can have one character complete all the factions. There are no stat requirements for advancement, just quest requirements. You can complete the Mage's Guild with little or no actual experience in magic, and they still call you the archmage. It destroys the immersiveness. Even so, many of the quests are very well-constructed and you feel accomplished for having completed them.
The combat system is vastly improved, and it is satisfying that any attack you make will hit and deal damage so long as the animation hits. One of the most annoying parts about Marksman in Morrowind was that even if you managed to hit with the arrow, it still had a chance to miss based on your Marksman skill.
Another major gripe is that most of Cyrodiil (the world for Oblivion) looks relatively the same. The area near Skingrad has a lot of colorful flowers and the area near Leyawiin looks vaguely like a marsh, but for the most part everything's green. The regions are not as diverse as they were in Morrowind, and you shouldn't expect to find any interesting fauna like mushroom trees about the landscape.
One of the main difficulties is the fact that the enemies scale to your level. If you don't plan your skills carefully and account for what enemies you'll be facing, you will quickly find yourself outmatched just during the normal gameplay progression. You need to have multiple sources of damage, or else you will come across battles that are either unwinnable or take an excess of time to win. For example, one swordsman I made could never kill skeletons, no matter how long I bashed away at them. All my swords would run out of durability before the skeleton died, so whenever I encountered them I either had to run or hide. This can be fun or not, depending on your play style.
Oblivion is a fun game, but it's not the same game. If you go in expecting to have Morrowind with enhanced gameplay, you'll be disappointed. If you go in just looking for a fun time, it is certainly a worthy title. It's worth playing through once or twice, and the Shivering Isles expansion packs is one of the most fun times I've ever had with gaming.