I personally think an Elder Scrolls MMORPG could work and be more fun than single-player, provided that Bethesda be innovative and make something that will blend all the good things from the single-player aspects of Oblivion and Morrowind with the scale and scope of massively multiplayer online.
Do away with contrived, scripted quests and use a more dynamic quest generation system that responds to the state of the in-game world economy, politics, disasters (eg. Daedra invasion), etc. That way, instead of every player going around doing the same quests the likes of WoW and every other boring rip-off out there, you could have people doing unique, one-time quests, alone or involving dozens or hundreds of players. I personally would love to see a major Daedra invasion (or some other major cataclysmic disaster) that suddenly takes place and all the players, no matter how high or low level, band together and everyone doing their bit to save the world. Or, it could be something as simple and mundane as an NPC guard coming across bandits and is outnumbered. If he sees a player passing by, he could call for help and this would create a new, dynamic quest and the player who completes the quest will be rewarded with some amount of gold coins or a note of commendation which they could then turn it in to the officials and might then find a new, dynamic quest that has him being enlisted into the Imperial Guard as a low rank soldier. The possibilities are endless and all the quests would be generated based on what is happening in the game world.
Enforce strict role-playing rules and only allow random-generated names based on the Elder Scrolls universe for all player characters, and there will be no more annoying character names. I'm sure it's not too hard to come up with a large database of random names that could possibly be generated. Make it impossible for people to use words like "noob", "uber" and so on that break immersion and ruin the gaming experience for others who want to enjoy being immersed in the game world. Use an embedded spelling and grammar checking system that will automatically correct any mistakes in a player's typing into chat, so that if a player types "Greetins, wats goin on wif u", for example, will appear on the chat window (or bubble) as "Greetings, what's going on with you?"
As for high level players harming low levels, put more patrolling guards in the starting areas and near cities and towns so that there will be plenty of protection for new players. Allow open PVP and full-looting, so that when large groups of low level players kill a high level, they can share in the spoils of battle. If a low level player decides to wander off into less patrolled areas, well... too bad. Just like in the single-player game, going into the forest or a dungeon when you're only level 1 is a bad enough choice as any and you will pay for your foolishness.
I think 2010 is high time that they introduce some better AI than what we've seen in Oblivion. Make the NPCs more realistic and consistent in their actions and conversations so that they remember what they've said to a player or another NPC and interact with them accordingly. Apply Radiant AI to their conversations as well as their daily schedule. Make them fully aware of their surroundings and the people around them, so that they mimic an intelligent and independent person. I don't see why it would be impossible to implement this kind of AI in an MMORPG.
Create a game world where there is no instancing, no separate shards and one that evolves and changes over time all on its own, with or without any player intervention, and you might have the perfect foundation for an Elder Scrolls MMO that is unlike any other. Of course, the trick is how to make it work but I'm sure the people at Bethesda could do something amazing, just like what they did with Morrowind and Oblivion.