Here is my configuration:
P4 2.8 GHz
512MB RAM ddr400
ATI Radeon 9600SE
Well, the game is perfectly playable, framerate is more stable then in Morrowind, but pretty low: probably 14-28fps. I am playing at 800x600, bloom, large textures, normal water detail and all reflections on; no shadows whatsoever; trees, grass and objects pretty much all the way down. Still, it looks very impressive and I am not spending hundreds of dollars on better framerates and anti-aliasing.
1024x768 with 2x antialiasing looks much better but is only playable in dungeons.
EDIT: just ran the game with FRAPS. Worse than I thought: in a thick forest, the framerate doesn't ever go higher than 15fps, hovers around 11. Forced to turn off the grass completly, which doesn't look quite so good.Looking down from the Imperial City into the west, on top of my horse, I get 15fps, but there are not many trees around. Disabling LOD makes Oblivion look like crap, but gives me around 22fps, which is much more playable. 960x720 looks much better than 800x600 but cost me 1 or 2 precious fps. Forget about AA.
In short, Oblivion is torture for my configuration, but it is playable if you can tolerate low fps and forests with no grass.