I do remember one of the final levels for the Fighters Guild, where you essentially destroy a machine used to make dope for the Black Marsh Mercaneries. Perhaps steam-punk esque technology is'nt as far off as some people think?
After all, i think going to steam punk would do the Elder Scroll's franchise some good, if it is too much like the old Oblivion then people will just think's it's a remake of that game.
By setting the game in a different setting you almost give the impression that it's a new game, this is reinforced by the long time gap between the release Elder Scrolls VI and V. I think Bethsada are really trying to avoid falling into the "crappy sequel" trap.
Steam Punk would be pretty cool, new clothes, hopefully better voice actors, new weapons and a new world to explore. You could keep the older weapons of oblivion, but also get newer weapon's like sabers, rifles, cannon's or possibly a gatling machine gun. The problem of a steam punk esque setting however would be the lack of armour, unless they decide to continue that anyway. I would'nt frown at a Rennisance setting Oblivion either, ok it may look a lot like Elder Scrolls 4, but the armour and weapon's would be different. I'll like to see the introduction of crossbows and halberds. Why could'nt we have crossbows in Elder Scrolls 4 anyway?