Sorry, but I'm at my wits' end here. If you are inclined to do some experimenting, try putting down some settings like Exterior Shadows (Oblivion FAQ: "Set Exterior Shadows as low as possible. This will decrease the number of characters that cast shadows while you are in exteriors, improving your framerate." - given that you have problems with NPCs). I do have framerates around 15 in Erothin too, but I'm playing on a laptop, and I have most settings much higher than you (except of a smaller screen res, and no antialiasing - I never use AA), and pretty much everything except for Erothin runs rather nicely. Sorry, maybe it is really your hardware...