Eh, neither TW1 or Oblivion really has a living world. They're both basically the same TBH. NPCs living on preset schedules with minor randomization of their actions, and semi-random spawns of enemies in the "wilds".
The best living world game I have ever played is STALKER. Oblivion was better than the Witcher in the case of NPCs living their lives independent of you, but still not as good as Stalkers A-Life.