Those small pauses don't really bug me at all. The game is pretty smooth. The two major complaints I have with the game pertain to the character models (mostly just the faces) and far away textures.
The character generation system is robust for sure, but it's still limiting in that the facial structure of everyone you make still looks similar. Most of the NPC men (at least elves) in the game look like 50-60 year old Steve Perrys (front man for Journey). They also went way too far with making everyone look old and/or ugly. It goes beyond realism. I had a hell of a time making a decent looking character, especially a girl. Man, the girls in this game are dawgs (the faces, anyway). I gave up making a dark elf girl then made a dark elf guy, but his body ended up being green (why would this be the default for a dark elf) and his face purple. It looked awful, it was like sticking a discolored doll head on a different body. My wife noticed this effect when I was talking to someone in town and mocked it. Luckily I noticed this immediately as I started punching the walls in my cell and saw that my hands were green. I finally gave up and made a decent looking wood elf (but still kinda weird looking, looks like the gray haired guy from this season's American Idol), which in some ways is better for the class I was going to be anyway. Still, once in game, the effects still make them look pretty realistic. The orcs look particularly good in-game.
The other graphical issue I have is that far away textures look muddy and just bad. The worst place I've seen this is the place you emerge from the tutorial dungeon. Seems like the worst place to have this happen. So far, I haven't seen much of this in other areas I've been to because the foliage is so dense.
One other complaint I have, though it may be premature, is that I haven't seen any impressive Radiant AI events yet, like they showed in the video with the lady and her dog. In that video she made all sorts of choices, practiced archery, made potions, got pissed at her dog for barking and waking her up, etc. I haven't seen anything realistic or lifelike in the game yet. Sure, people have their schedules, but so did people in Ultima V, and that required no AI. I followed one guy around for a day and he went to his job at the castle and just stood there for a few hours. He walked around a bit in the room but he didn't actually do anything. At the end of his day, he did go walk around on his horse in a pasture, which was pretty neat, but not impressive.
I'm extremely impressed with the weapon and armor models. It's so nice to actually have decent looking armor even at the start of an RPG for once. The armor really looks good, the textures are nice, it's shiny in the right places, and the art design is top-notch.
The models are very nice. Aside from the NPC and PC faces, the models are great. Monsters look really cool and the fauna look very realistic.
The environment is incredible. There is no game that matches the environment in this, not even close. My wife was "ooh"ing and "ahh"ing just watching me walk around some of these places. There are times where you just stop and appreciate the view. The plant life is fantastic. The water looks nice and reflects really well. The sky looks as close to real as I've ever seen and is a very high quality texture.
The artificial environment is also very impressive. Buildings and cities look great. The dungeons are very well designed. They are extremely believable and vary greatly in design from one to the next. This is a big step up from Morrowind. The dungeon design is the best I've seen in any game (in memory, anyway). They even added all kinds of traps that use physics to hurt you.
Speaking of physics, they really help make the game. It's so satisfying to take out a goblin who is lunging at you in midair with a bow and have him be thrown back 10 feet. Bodies will even realistically roll down inclines, which is a first. I've seen games where a body slides but never rolls. The physics add a great deal to the game and really help make it more fun than it would have been without it. There was a part in this one dungeon that really made me feel like what it would be like to be a real adventurer. There was a chest surrounded by skeletons with single gold pieces everywhere. I actually had to move the skeletons (using the L should button) to pick up gold coins that were lying around. Of course, as I moved the skeletons about, equipment and gold slid down the hill just as it would in real life. I really had to sort through the piles of bones to get to everything. It would have been more immersive if not for the fact I was so impressed by the engine.
I love the combat system. It's better than Morrowind and seems harder hitting in the way it controls. You also get special moves as you get better at fighting and athletics, which is new. You even can dodge spells and arrows, so it's very interactive. It's mostly based on skill, though your damage is obviously mostly based on your equipment and stats. Ooh, I wonder if you'll be able to use the telekinesis spell on enemies and throw them against walls???