Fallout 3 is a much more polished product than Oblivion. The people are designed better, the landscapes, although repetitive, are arguably more varied than in oblivion, and the dialouge system is far more intricate in that every response you choose in NPC conversation is done in entire sentences, usually either agressive, neutral, kind, or downright dickishly cynical. This results in small differences in how the NPCs respond, and greatly helps immersion in my opinion. It's also a lot less glitchy, and generally feels more refined as a product, as they've had time to improve since Oblivion's release.
Oblivion, on the other hand, handles almost all of it's NPC conversations through you choosing a single topic and listening to their harangue about it. You'll end up hearing the same things verbatim from a lot of the same characters. However, Oblivion has far more NPCs than fallout, being that it takes place in a setting where most of the human race HASN'T been wiped from the face of the earth.
Oblivion has better character customization in the way of skills and equipment. Fallouts wardrobe is mostly for aestetic and defensive purposes, with the occaisional stat boost, whereas Oblivion has a multitude of different enchantments available to customize your character. Anything from walking on water to partial invisibility, night vision and life detection combos ala THE PREDATOR, etc..
Fallout 3 compensates for this with it's perk system that lets you choose a new trait or ability upon each level up, like cannibalizing dead bodies for health, extra blood splatter and dismemberment on your targets, and the ability to take body parts from your victims and sell them for bounties, among others.
CASE IN POINT: Fallout 3 is a much better product, as it's less glitchy and it's layouts are less cumbersome than Oblivion, but Oblivion lets you build a more specific character than Fallout would. Ninjas, Barbarians, Wizards, etc. In Fallout you can either be a saint who shoots at people or a total dick who shoots at people.
