Actually, Oblivion is not better.
In case you didn't know, Tamriel was based off of the developer's D&D story. It would make sense to have Morrowind use similar mechanics when fighting instead of hitboxes. And if my sword goes through a person but doesn't hit them I don't throw a tantrum, I use my imagination to imagine the guy parrying me or dodging.
And while Oblivion may have all these aesthetic things, it doesn't change the fact that the world lacks content, and it doesn't have the overall charm Morrowind has.
If all you care about is something that looks good, then Oblivion could be considered better. But if you wanted to have fun exploring the vast area of Morrowind for hours, or perhaps journeying to the cold desolate island of Solsthiem (I think that's the islands name), and encounter barbarians and wolves, then Morrowind is indeed the better game.
I for one am not a shallow gamer, so I don't really care if a game has decent or next-gen graphics.