The comparison was between "a critically acclaimed" videogame, and a "universally loved" novel. This is inferring that they are equal in credibility as far as their respected mediums are concerned.
Because of this fallacy - comparing one of the best videos of all time to a book written for a franchise - the argument is weaker. Bioware vs Timothy Zahn; an industry leader vs a franchise writer. Surely it would have been better to compare KOTOR to something written by Iain Banks.
The fact is, you would not compare the game series Elder Scrolls and submise that it is narratively better than the book series Discworld. Where the characters and locations in Discworld are often full of life and charm, Oblivion's are mostly forgettable. True, Oblivion has a lot of things going for it, and the painting quest was excellent, but these only stand out because of the limited supply of other *gasp* events. Aeris' death in Final Fantasy is constantly talked about because it has very few peers. There are very few games that you can compare to books - Final Fantasy, Monkey Island, and perhaps Half Life 2 being noticeable examples, but even games that have tried so hard, such as Fable, end up coming tacked with a clichéd uninvolved plot and numerous cardboard characters.
I agree with the notion that video-games can be the ultimate media, but right now they are not, and if we truly want to get them there, then this kind of optimism really isn't helping. The best books are full of life and charisma, only a select few video games can claim that. The time-stop conversations and random babble that NPCs spew out to each other in Oblivion can't, nor can the standing-around-aimlessly, whilst-repeating-phrases-every-now-and-then characters in most story-led games can't either. Too often do games seem robotic and forced, and this is partly to do with technical limitations and also to do with the lack of imagination that goes into titles.