What resolution are you running the game at?Man your system will run it just fine. I have a 6300 dual core 1.8 with 1G Ram and a 8800 GTS (Nvidia). I run everything at Ultra (from the main screen) and I run with HDR only. There are more graphical sliders I could slide up but I dont. I could go into my videocard settings and force AA while running with HDR but it looks so good like it is. I run constantly around 30-40 outside. One thing is do though is I reboot with only the windows system booting up.
If you do get Oblivion (for the PC everyone) you MUST get the mod "Quarls Texture pack III". It adds a ton more realism to everything. I will try and find a link for it soon.
Mods are one of the reasons PC still beats the console most genres.