They didn't play it. Combat in Morrowind had no variety and no strategy -- you just clicked as fast as you could. You COULD choose different attacks (slash, chop, or thrust) by pressing a directional key while you attacked, but that was pointless because there was always a "best" attack, and a checkbox in the options to always use that best attack.
In Oblivion, there are many attacks. You have standard attacks, where you click the attack button, and power attacks, where you hold the attack button. Power attacks do more damage, but take longer to perform and burn more fatigue. If you press a directional button while doing a power attack, you can select different power attacks. And you earn more attacks (plus perks like a chance to knockdown or disarm) as your skills get better. But the control scheme stays the same, so you don't have to do Soul Calibur like button combos to access them.
There are also more animations for the standard attacks, and you can string them together by pressing attack again while your character is following through after a strike. Plus, the animations are always appropriate for the type of weapon. No more thrust attack with a hammer, for example.
Blocking is now active -- you hold a button to block. And you can block with your weapon or even your hands (although neither is as effective as blocking with a shield). If you block a strike, your opponent's weapon may recoil, giving you an opportunity to attack.
You can also cast spells at any time. In Morrowind you had to "ready magic", which meant unequipping your weapon and raising your hands into the "casting position". In Oblivion you just press the casting button.
It all makes combat much more dynamic and adds a strategic element that simply wasn't there in Morrowind.
While you, the player, still control combat -- i.e. how you move around, whom you are targeting, when you attack, block & cast -- your level of success is still dependent upon your character's stats, as well as those of your opponent. It's a balance between player skills and character stats. It's more twitch than a pure turn-based game, but it's nowhere near as twitch as a first person shooter or fighting game.
The goal is to make combat more exciting, more involving, and have more depth than Morrowind's. I guess they didn't get that from the demo.
