After playing ESIV: Oblivion for an ungodly amount of hours and am still playing. I think they solved both.

Massive explorable environments littered with hundreds of explorable indoor environments you can enter. Some are massive caves, some are small homes. The combat can take place anywhere. I think that is perfect balance. Of course running from one end of the world takes an ungodly amount of time, but if you have a horse there is a "fast travel" mode.

I want more games with that set up, or should I say done that well.