I don't remember any racist characters in Oblivion (I didn't play much of Morrowind), IIRC the NPC's that hated me, always hated whatever class I picked, or it was a town against a certain class. (again, IIRC... it's been a year or so since I played Oblivion)
In Morrowind, playing as an Argonian would automatically lower your disposition with some characters and they'd refer to you as a 2nd class citizen. It wasn't much, but my point was that the only difference in Fallout's dialog was whether or not an NPC (and the non-important NPCs said ONE SENTENCE when you talked to them) would talk to you or blow you off. Oh yeah, you could have sex with that caravaners secretary if you were male.
Baldur's Gate actually had some variance in dialog based on current events, your parties reputation, and your race and gender but once again none of it had anything to do with the game itself. It actually brings up a good point on "interaction" in videogames because there is only one game I can think of where an NPC's opinion was directly influenced by your character and that's the original Black and White... and even in that game villagers were either impressed by your creature or they were frightened which only impacted how quickly they were converted. Fable also had a NPC reaction system but just like Black and White it simply boiled down to "are the villagers afraid of you or do they like you?" and it affected absolutely nothing else.
If Fallout 3 actually has
real cause and effect choices that actually change the game's story on the fly or cause NPC's to react to you differently based on what you've done (killing mutants causes villagers to call you mutie-killer or just something basic like that) then I will actually be impressed. It would be really really awesome if, for example, you kill a den of deathclaws but a nearby town starts to get infested with killer mole rats because you just whiped out the mole rats predators. THAT would be a real example of cause and effect and I will proudly flaunt in Fallout purists face that Bethesda did something Black Isle promised to do but failed to deliver on (or at least did poorly).
As far as Karma goes, it was a limiter of sorts on the quests you could take. There were a handful of quests in Fallout 1 (like... 3 or 4) that couldn't be accessed until you had a high karma. In Fallout 2, I'm pretty certain Karma did absolutely nothing for the game except maybe change a single sentence in the ending.
The lead designer of Fallout 3 said in an interview last year that they were focusing most of the game's dialog on karma so every NPC will react to you uniquely based on your karma rating. One particularly interesting thing he said was that the game supports the middle ground as opposed to either extremes which is cool to me because the choices in fallout aren't always good or evil (great example is supporting one of the miners in Fallout 2; one miner supports drugs from new reno while the other supports the fascist new california republic). A lot of RPG's like KotoR and Mass Effect (although Mass Effect's good/evil system was pointless other than making conversations sound cool) focus on two extremes but it's great to see Bethesda wants the game to have the same storytelling style as the original Fallout.
Of course, Fallout purists don't read developer interviews and judge the game completely based on material that was announced 2 years ago.