After checking out the disappointing slideshow effect of full 1680 x 1050 resolution with everything maxed out, I was for a while running the game at 1280 x 720. But to get it to run at a decent framerate most things had to be turned off or down - though I have always had it running with max view distance and far lands enabled.
Such a shame considering how well my iMac copes with Half-Life 2 and Tomb Raider Legend.
After a lot of tinkering I found that I preferred to run it at a lower resolution but with everything at a better quality. Running at 848 x 480 I've disabled anti-aliasing, turned water quality down to normal and disabled all other water effects. But I've left most other things set to medium or high, including grass draw distance - I like grass;)
Best of all I've got HDR enabled, and it really does make a difference to the quality and feel of the colour and light in the game. Without it everything feels a bit flat and washed out. HDR really brings the scenery to life.
I don't have shadows on outdoors, but turn them up a notch or two for indoors scenes.
It runs really well, mostly quite smooth, even outdoors. Okay, the resolution may seem a bit low, but it actually does still look very good - you do learn to ignore the jaggies.
I think it is a case of quality and effects over resolution and sharpness. I recommend having a tinker and trying out various things until you feel happy... but be aware that the biggest performance hitters of running Oblivion on an iMac are anti-aliasing, water effects and having lots of shadows, especially at higher resolutions.
20" iMac (Intel Core Duo, 1gb RAM, 128mb video) Mac OS X (10.4.6) I've got a Windows laptop still... just in case. Of what, I don't know.