It's singleplayer, one of the points of oblivion is to create a world that would feel lika a MMORPG but it wouldn't have all bad sides and that all characters would be what they actually are so it's not like the citizens says "i need another 2345 xp, lets go grind some". therefor the game uses radiant artifiacial intellect which is like normal AI but it hasen't just been programmed to use the best tactics to frag you it also includes all those needs of getting food etc making it a very simplefied living creature. so every citizen needs to get food or cash to buy thier food and so on. to bad that this RAI diden't work perfectly as it sems that it can't hear other peoples discussions so sometimes 2 pairs of people in a bar sitting next to eachother discuss the exactly same thing using the exactly same words also conversations between RAIs get very stiupid some times like:
john: i've heard that bob is good on lockpicking
fritz: i've heard that bob is good on lockpicking
john: That's what I've heard
fritz: bye
john: bye
still it's a very good game and you should go for it if you like FPS and RPG,s as this one is actually a really good combination. it also has good stealth sneaking aspects.
Else i can just recommend to wait for Crysis, it will be released sometime when vista gets released as it will use DirectX 10 and have a totally owning engine, especially if you've got a PPU
