Morrowind was one of those deals where you really have to play it without expectations, along with a sense of wonder. Now that Oblivion has came out and the face of gaming has changed its hard to appreciate it normally. It's a great game, but definitely more niche these days.
Yeah, I'd imagine if you've already played Oblivion then Morrowind would be nearly impossible to enjoy.
That happened to me and I can't say how sad I was because a friend of mine kept telling me to play Morrowind back in the days as we both were RPG fans and I kept pushing it away until I played Oblivion. When I decided to give it a go, I simply couldn't. It was too ugly and lifeless.
Well, lesson learned. When a friend recommends you an older game, play it before the newer one is released.