You can do an rpg, if you want to, but don't take oblivion as example. In my opinion (although I like some aspects of oblivion) I don't think that it is the best example of what an rpg should be like. An rpg doesn't need a great world of freedom and choices nor does it need a high end grafic system. In fact Oblivion needs these elements, as it offers nothing else of the elements I love the genre RPG for: A dynamic, exciting story that shows the real aspects of character simulation and fantasy and real charcters that have a meaning and can create real emotions, not only a world full of stupid models with a lot of skills, on which nobody really cares.

Try to build a small but exciting world with places that have a meaning showing that you tried to build a real, living story line and not only a great empty grafic galery. Don't build up a complex character system with thousands of skills, values options and items, but give your character and any of his characteristics a real meaning for your gameplay.
I could imagine an RPG with a world with dimensions of a small village and 20 characters living in it, that might still be more interesting and exciting than oblivion ever could be.

(This of course is only my understanding of the genre RPG, others may define it completly different)