Oblivion is nearly 20 years old now and looked terrible at the time. (compared to other games that shipped at the time) Oblivion is a _big_ game not a polished game.
update: I found this screenshot and I think I was remembering Morrowinds characters.
Morrowind had very janky animations, but it wasn't too bad for 2002 otherwise. Definitely not top notch, but, well, look at faces in Deus Ex for another example from this period...
Oblivion had those weird faces but was otherwise pretty good actually, especially the lush outdoor environments.
