I am concerned more about the gameplay than the graphics however I would also say Oblivion is quite old and not a good comparison to make. You could have as a reference a current FPS, even something like Dragon Age which doesnt really push limits and uses a lot of things which are in Unity(it really over uses bumps and speculars)
The houses are great. However they are islands of greatness floating in a poor landscape(probably due to difficulty/shader limitations for terrain). I understand its quite difficult to make better terrain option 1) Get a custom shader 2) Use a mesh so you can choose other shaders 3) wait for Unity 3 and see if it improves
Even if you cant improve terrain much, you should try, and also make lots of decorative features like fences and smaller items on the ground. Trash food and so on. Its all meat and no potatoes at the moment.
However its the game that worries me. How can a medieval capture the flag game work? I have played a game called pirates vs vikings and it really sucked bad. First person hack and slash doesnt work multiplayer, it works for 1 player game Oblivion, however multiplayer it just is boring in my opinion.
It might work if it was slower, the problem is it would be like an episode of Benny Hill if it was too fast people all running about and no actual medieval swordsman feel at all. In that kind of situation its not got visceral bone crunching action its a bunch of people running about desperately trying to hit each other as they run past.
I reckon it could be great if it was slow enough so that people cant run away so easily.
The real problem is running, in real life running would be a situation related to fitness and so on, in a game 2 people chasing each other is ridiculous as you move at exactly the same speed. A game therefore should either address this or not have it as such a central feature. Its not as if you have guns to get around focus on this issue so it has to be considered.
I also spotted your smoke
The particles slow down as they go up, a little too much but you can already probably know stuff like that.
I downloaded some free smoke today. Here Homepage : Freestuff and it is worth logging in to this site(although I havent opened the smoke). I dont personally want to make all my smoke textures, brushes from scratch so I get it all free.
If its 3rd person though thats probably different. Some games seem to successfully use 3rd person.