Apologies in advance for this wall of text. Slow work day.
tl;dr: I liked the first game I played, too, and here's a giant post about it for no reason!
I've played the most recent Elder scrolls games pretty heavily(Morrowind: 500+ hours, Oblivion: ~100 hours, Skyrim: ~100 hours), and I tinkered around with Arena a bit when Bethesda released the free version. I haven't gotten around to Daggerfall, though I hear it's great if you can actually get it to run. Before we continue I'm just going to slap a massive IMHO tag on everything that follows. Like pretty much everyone, I like the game I played first, best. Just like all the other posters, I am completely objective, and not simply arguing from a platform of wistful nostalgia. I'm glad we're all such reasonable people!
Morrowind was fantastic. Skyrim was pretty good. Oblivion just didn't do it for me.
I'll briefly list a few reasons why I like Morrowind so much, then I'll blather on about them at length like your drunk uncle at Thanksgiving. (If you don't have a drunk uncle, you really ought to get one. They really liven up holidays.)
1. Morrowind felt like a much larger and more varied world than Oblivion or Skyrim
2. Morrowind gave the player incredible freedom (far, far more than the others)
3. Morrowind had more and better factions and side stories (more stuff to do! more ways to feel like you were changing the world!)
Other games hold your hand. Morrowind shoves you off a boat and spits in your face. OK, maybe I'm not making the compelling case I think I am, let's back up.
Stepping off the boat into an immense world where everyone either ignored or disliked you was so refreshing after so many games that held your hand and made you the center of the world. Finding out you could do pretty much whatever you could get away with (starting off with theft and ramping up to murder and beyond) was incredibly liberating.
Morrowind gave the player much greater freedom than either Oblivion or Skyrim -- it gave the player the freedom to completely destroy the game. There were no unpickable locks -- if you were good enough with a lockpick or handy enough with spells you could go pretty much anywhere. Somewhere around my 200th hour of gameplay I picked the lock on God's door, killed him, trapped his soul in a jar, and added the jar to the continuously-growing shrine to my own awesomeness which I built in a house I appropriated**. If you were up for a hellish slog, you could go give the final boss a visit before you even started the main quest. He even had dialogue written in case you showed up too early! (He was very polite, though I don't think he offered me tea)
If you killed an NPC you needed, or you lost some quest item, too bad. Luckily, there were so many things to do that it hardly mattered if you broke a quest here or there -- you took your lumps and moved on. Or maybe you killed the quest-giver and took the shiny hat he was going to give you in the first place. Even so, if you somehow managed to break the main quest, there was a back channel for you to get what you needed if you looked hard enough. (Of course if you weren't strong enough, the hacked-together doomwidget you made would kill you instantly and without warning, but if you hadn't stabbed poor old Caius Cosades in the face in the first place then you wouldn't have to deal with such inconveniences)
I've seen a lot of people complaining about how hard it was to find a particular dungeon or NPC or item, but that's not how you play Morrowind. Instead of hunting for this particular item, or that particular person, you wander the world and see what there is to see. And there's so much to see! All the while you keep track of your progress with the various factions, and if you're lucky you may come across something you actually needed for a quest at some point. Morrowind is not an RPG with an exploration element, it's an exploration game with some RPG features.
Which brings me to the factions -- Morrowind had much better faction quests and storylines than either Oblivion or Skyrim. Of course there were the requisite fighters guild, mages guild, and thieves guild, as you would expect, but you could also join one of the three great houses and eventually build yourself a stronghold somewhere. The Morag Tong was just cooler than the Dark Brotherhood. You could join not only the Imperial Legion, but also the Imperial Cult and the Tribunal Temple! On top of all that, if you became a vampire you found out that there were actually three separate vampire clans, with their own storylines and quests. Trying to balance the requests and demands of all of these factions was great fun, as most of them weren't on particularly rosy terms, just about all NPCs had some sort of faction affiliation, and pissing one of them off too much could get you banned permanently.
That's not to say that there weren't issues. The combat system was pretty clunky, and the skill-based chance to hit made fighting with a new weapon pretty painful. After leveling a bit it wasn't bad, but you'll never hear anyone call Morrowind's combat elegant, polished, or even good. The skill system was undeniably confusing and arcane -- I liked the complexity of it, and the way it made each character feel unique, but I can definitely see how it could be a friction point for others. At low levels some skills felt unusable (archery, I'm looking at you), and at high levels some skills were nonsensical (Acrobatics -> I CAN FLY!); I didn't mind the initial slog, and I loved the over the top maxed out skills, but I can understand how those could be frustrating or screw with people's suspension of disbelief. Hell, just walking from place to place took forever until you got your acrobatics up!
Oblivion just felt much smaller by comparison. There were plenty of dungeons to hunt through, but outside of the dungeons the world just didn't feel as interesting. The factions were far less compelling, and their interactions were less byzantine (I never thought I'd list "byzantine interactions" as a good thing!). The main quest didn't really grab me, though that's pretty subjective. The oblivion gate mechanic was an interesting way to add some new areas, but didn't really add much in the way of actual playable content. Most egregiously, the leveled monsters and loot made leveling any non-combat skill a terrible choice early on, severely restricting playstyles and making most dungeons feel pretty generic. I also really disliked the voiced dialogue for all the NPCs and the creepy fish-eyed stare you'd have to endure every time you talked to someone. I much preferred the written dialogue in Morrowind, both because there was more of it and because I didn't have to spend nearly so much time in the uncanny valley. Though Oblivion fixed some issues with combat (especially the super high miss chance), it never really felt great to me. That could perhaps be because I spent all my time getting my ass kicked by leveled monsters because I kept leveling off of sneak, speechcraft, and lockpicking.
Skyrim dialed the leveled monsters back a bit, but not enough that most dungeons didn't feel pretty generic. Fighting dragons was ok at first, but it just got silly after a while when they were far easier to kill than some random Draugr in some generic tomb. The dialogue is a bit better in Skyrim, but weird voice changes and uncomfortable staring persist. Again, there were plenty of dungeons to crawl and things to kill, but it felt like there were less things to do.
It's entirely possible (and quite likely) that I just feel like Morrowind is so great because I played it at a time in my life when I had a ton of free time to spend exploring the world, but Oblivion and Skyrim just never really clicked with me in the same way. I'm going to stop myself for now, because I have a strong urge to shake a stick and tell everyone to get off my lawn. If I keep going much longer I'll spend as much time talking about TES games as I did playing them!
** Quick aside: in Oblivion and Skyrim it's a huge pain to arrange items in the world -- half the fun of Morrowind was turning some sap's house into a showroom for all your cool stuff! I know you can buy houses and put armor and weapons on display in both the other games, but in Morrowind you could just kill someone and take their house (provided no one saw you do it, of course!) or find an empty house and make it your own. It was also much easier to place items, so you could build towers of all the rare books you found, cover tables with all the cool weapons you found, and generally rework the place. You could build yourself a throne of skulls, or a throne of apples, and generally make cool stuff to show off to your friends.
