I'd say it like this:
There is "free character development" and there is "do what you want to do".
Games like The Witcher encourage you to take your own path... As long its something the character in question would do. This allows for very fine grained differences in choices, and real paths from action to consequence.
You can't be a mage, nor a politician, nor a simple human. You're a witcher, more specifically, you're Geralt. You can do what Geralt can do, you can react how Geralt would react, and the world knows it, the world knows you're a witcher, the worlds knows you're not a politician, nor a mage, it certainly knows you're not a normal human, and treats you like what you are, Geralt, a mutant, a Witcher, in the middle of the human lands.
Elder Scrolls games (at least the latest 2) take a different path. You can do whatever you want, anytime. This often ends in varied actions (I can be a mage! Or a warrior! Or a warrior-mage! Or a stealthy illusionist specialized in single handed weapons and alchemy! and so on), but a path much less clear on the consequences side.
I've found that such liberty makes very hard for the world to react to the player. In TES the world doesn't cares about what you do, it doesn't matters where you come from, what have you done, who you are, what you're best at, what are you worst at, every single quest is made so anyone in any situation at any time can approach it, because the game makes it so anyone actually can be in any situation at any time, there are no restrictions.
Its really interesting since in Skyrim, you're in the middle of a war, waged for very controversial "black or white" things like religion, race, and nations. So you'd expect that if you are say, a Khajiit (cat human thing) or a High-Elf, your experience would be much different from say, starting as a Nord, or an Imperial. But it isn't, there is no difference beyond a few cues here and there. Maybe the occasional nord vendor will say "Oh, you're an elf", will they stop selling to you? Will they attack you? Will you get in prison? Nope, not at all. The most you will get is a frown, or a single speech line. The world still functions the same for you, no matter what you chose to be.
The game is so broad that every aspect of it can be approached for equivalently broad angles. So all the possible ways for "character development" end up in making no difference at all.
I think there is a middle point in here, and I think it can be achieved through consequences and restrictions. You're a mage? Well, you don't get to enter the warrior's guild, and some people will downright hate you and will refuse to give you quests if they have ones.
At the same time you have to compensate for that. No warriors guild? Well, there is a mages guild! And they have mages only quests, with contents that could only be done by mage characters. "Go clear the dungeon" ? That's not a quest for a mage, everybody can do that. Go and study this magical device? Use it to unseal some ancient enchantment? Now that's some mage stuff!
In that way you end up with, lets say, "windows". You can see the whole world, its still open, but you choose which window to look through to inspect the world. As Todd Hodward said (but didn't follow through in my opinion with TES games), you can do anything, but you cannot do everything.
In that way, choice will matter, what you do will matter, and there will be more clear paths to show that to the player.