Section8
Cipher
Don't know what you have been reading, but to me the meaning of this feature was pretty clear from the very first review I read.
Washington Post said:To make sure soil erosion and geology in the game world looked realistic, the company sent an employee to the University of Maryland to study up on the topics.
That was the first one I read. Obivously I should have paid more attention to actual gaming rags writing about it.
The point of procedural content is to have more resources for both aritistic and gameplay fine tuning. Wether they made good use of it only the final game will tell. Still, I expect Oblivion to be, if not a deeper game and maybe not even a better RPG, at least to be a better written, better polished, more entertaining, and yet still a LARGE game, partly because of this feature. So its a pretty good priority I think.
I'm not talking about procedural content being a poor priority, because it is as you say, a shortcut that allows more resources to be spent in other areas. The priority I was referring too was the focus on "realism" to the point where they spent time (and money) learning from a geologist. That shows no concern for the feature relative to gameplay.
Same deal with the forests. All the effort seems to be going into "realism", or at least, making them look very pretty. Maybe they will turn out to be decent gameplay spaces in spite of that.