Assassin's Creed 2. It went from being a tedious grindfest to a real fun game, it got improved in nearly every single way.
Saints Row 2. The first one was a fun sand box game, but it was still more or less a GTA clone, in SR2 it really got its own identity, you had A LOT of customization options, hilarious cutscenes/dialogue etc. It had the right balance between funny and serious. Sadly in SR3 they messed it up. Here's hoping the 4th will make things better.
The Elder Scrolls II Daggerfall/III Morrowind. As someone who played the original, let me tell you. It sucks. I never really got into Daggerfall, nor did I have the time, but I do know that in Daggerfall the lore of TES really started, More stuff to do, for example you actually had factions, and many side quests, Arena had very, very basic side quests, and they were all boring. I did play Morrowind and that one was amazing of course, a lot of TES fans will still tell you to this day that Morrowind is the best game in the series. And I can't blame them.
Lots of people mention the Witcher 2, but I won't include it on my list.
I absolutely loved the first one, yes that includes the combat, they were simply very different games. Thus I don't necessarily think it was a big "improvement" over the Witcher.