SureAI

This is like 10X better than normal oblivion! I'm having a blast so far.

But outside my FPS is dropping to around 20-30 with all these trees and stuff ;p

I've tried adjusting some options but no luck. Any secrets to better FPS? I run vanilla oblivion at 60 usually so I haven't really messed with graphics settings much in the game.

Well Nehrim is using some Texture Replacers from Quarl and other stuff, also everything in Nehrim is built by hand and there is a lot more stuff around so it's no wonder you have lower fps.
My tipp: If the framerate drops to 5-15 fps you should open the cheat console with ^ and then type in tll
This may boost some more fps but you will not be able to see things which are very far away, but anyways it's better to loose some graphics instead of playing with a slideshow ;^)
If I were you I would put tll in the console before going near Erothin or you will experience some bad situation with your fps

There are some advanced settings like "underwater effects" in your diary (the one in your inventory, where you level up). Switching them off can do wonders. I would first try this before I would switch off distant land, maybe it will already be enough...

Keep in mind that Nehrim uses pretty much everything the Oblivion-Engine is able to perform to an extent that it's even overchallenged at times. It was one of my problems during the Beta that I was not able to run Nehrim as what I call "fluently" although my PC has plenty of power. So nevermind slight lags, occasional jerky movements and the like.

Well the only thing that seems to effect it is the view distance slider. Nothing else does anything sadly, even making the trees look like paper figurines.

What kind of FPS should I be aiming for if this game stretches the limits of the oblivion engine to its max?

Open your Nehrim copy of the Oblivion ini and set the grass down low. It can make a huge difference. I basically turn off grass on my laptop and run all the bells and whistles on my quad-core with a decent graphics card. Just follow the guidelines in the Bethesda forums for tweaking the ini for better results. These tweaks work for Nehrim too.

Well turning off distant objects seemed to work some.

But now im stuck. I aggroed those mages outside the mines for the soap, collected the soap, now the mines are locked and say "needs a key" ;p

Hasn't Morten given you one?