Although I agree with the sentiments that Oblivion only deserves the title because of the relatively poor quality of recent games and that Morrowind is a superior game, I do think that Oblivion will shine far better when enough progress has been made by the modders out there. Frankly, I was as disappointed with vanilla Oblivion as I was with HL2. However, with about 70 mods going, I'm happy enough to be playing through Oblivion a second time and making adjustments as I see fit along the way. If you haven't tried Oblivion with a substantial number of mods and ini file tweaking, I suggest it before giving up all hope. If you have and still can't enjoy the game, then come back later. I'm sure the situation will improve.
It seems likely that given time, enough workarounds will have been produced to solve most of the problems in Oblivion. Between player-made bugfixes and rebalancing mods, many gameplay issues are constantly being improved. Also, such tools as OBMM and OBSE greatly improve the useability of plugins. Sadly, I think Bethesda expects and relies on just that. Maybe next time, they should put more effort into getting the engine issues worked out and producing a smaller master module with less bugs and let the players add to the story and world instead of doing the cleanup.
I'm just bitter though. It gets annoying when every single game you buy these days is a let-down. Hopefully Gothic III will provide some relief from that when it is released.
And truly, Oblivion does have a number of good aspects. Nice graphics for example and it runs fairly smoothly with grass turned off, even on my 1.8 gHz processor. The intro film is rather impressive and some of the havok engine physics provide mild entertainment. The entire character creation dungeon is a step up from the very quick creation in Morrowind. I like how it tries to determine a suitable class, although I always make up mine own. There was definitely a lot more time and effort put into the character textures than in Morrowind, although they're still less than stellar. Horses add to the setting, and make decent transport if you don't like the fast-travel function. Faces are easy to modify in the CS, in spite of being somewhat painful to get right in the Character Creation screen. The voice acting of certain major characters is great. The main storyline, though simple, is entertaining. The journal is easy to navigate, and the general idea of having waypoint indicators available is good, although I do wish they were optional and not critical for most quests.
It's easy to criticize when there's so much potential, but like many large games, there's a lot of decisions to be made and they can't all be right. I don't regret purchasing Oblivion, nor the time I've spent playing it. It definitely deserves recognition for that much. All said, yes, Oblivion does deserve the honour of best game of the year. Perhaps, after a few patches and further modding, it will be worthy of being called one of the great RPGs ever developed, alongside its predecessor Morrowind. I'm hoping so, but even if not, I'll keep playing and perhaps get a few more bugfix plugins out.