There’s an interview at Bit Tech about Elder Scrolls 4: Oblivion for the xbox 360 and eventually the PC. They have some great screenshots, too:

As you can see, great attention has been paid to environment effects like trees, natural animals, other plants, and wind. Here’s a choice quotation:

The forests and grass do animate differently in response to changing weather conditions. There are also ambient effects to increase your sense of immersion like leaves falling from trees, butterflies flying around, and birds chattering in the trees above you. No cloth physics unfortunately. We found they are a huge sink for processing time and we’d rather spend it in places that really make a difference to the gameplay like AI. Arrows will shoot through the air using physics; arcing based on force and gravity. Wind won’t blow them off course however. I think that would really decrease the fun of archery, and you’d start wanting to clutter the UI with things like wind indicators.