Ok, to address a few questions!
I think my character looked bigger because of the shirt she's wearing. I don't think she's flung that sword around quite enough yet to get truly beefy, so I'm guessing it's just poor tailoring.
There are both good and evil choices present (and yes, your dog will change just as you do), but there are also pure and corrupt choices. Eating meat, for example, is corrupt, because that meat was once a happy little chicken or big-eyed cow, or whatever. Going the vegetarian route is more pure, as is not drinking alcohol. So you can be a good but corrupt person, or an evil yet pure one.
As for the blowjobs and banana pudding...the main quest is decidedly linear, and there's plenty of stuff to distract you along the way, but Oblivion, this is not.