I personally feel Morrowind is better. Whilst Oblivion makes some great strides in some ways (Graphics and physics being the most obvious ones), Morrowind was far more immersive and more importantly, far more interesting. Oblivion is pretty standard fantasy schtick. Nothing dire but nothing new. Morrowind was set in a genuinely original, interesting location which it felt alien to be within. There was still regular fantasy stuff there, but it was used so well that when you wandered through Pelagiad you felt it a place of familiarity among an entirely foreign culture, for instance.*

I loved exploring in Morrowind. Exploring the outdoors, exploring dungeons, exploring settlements, exploring the history and story - it was fantastic. I've not cared at all to explore in Oblivion. At best, I wind up with a nice new item. I don't end up with any personal experiences, for the most part. I remember when I was new to Morrowind, I made an Argonian who wanted to join the Legion. But he didn't just get the Silt Strider up there, oh no - he walked the entire length of the coast from Seyda Neen to Gnisis to prove that he was ready for it. That's the kind of experience that made the game so great to me, and Oblivion just doesn't feel like it provides that oppurtunity. (Although things like MMM and OOO do improve the situation slightly by at least adding an element of danger. And to be fair, I did always play Morrowind with things like GIANTS once I had it on the PC.)

* And the remoteness of places like Tel Fyr or the entire Sheogorad region just absolutely outclasses Oblivion, even if you mod the fast travel out of the latter.