Have I already said that I hate Netimmerse/Gamebryo?
Well, people are reporting that with a simple change to the advanced options of Nvidia drivers you can greatly reduce mouse lag and have a more steady framerate.
This is a bug in the Netimmerse/Gamebyro engine that is about three years old and that I discovered because without the fix I just couldn't play anymore DAoC on my old Geforce 3.
To apply this fix and enjoy the improvements in Oblivion you just need this small file (right click and "Save As..", or it will show on the browser window). Double click on it and it will ask you to add some options to the Windows registry. Accept it. It should work with every driver version, so don't worry about compatibility issues or nasty surprises. It just enables some hidden options in the graphic drivers.
After you have applied the registry key you'll have a new tab in the options of the drivers. Under "Performance & Quality Settings" you'll find "Additional Direct3D Settings" and it's where you'll have to change the "Max Frames to render ahead" from 3 to 0 (or "1", just try both. At that time setting it to "0" didn't work. I don't know if something changed). This is a "safe" change. It won't create problems in other games, so don't worry about messing up.
The slower Oblivion runs on your system the more this fix will improve things.
Congratulations NDL. Three years later and this major bug is still there, intact.