OK - Oblivion is a wonderful game but a bit quirky.
0) Unlike like most games, when you level most mobs level with you. This is unlike every other game I can think of. The implications are horrendous. For instance, if you level by just use of social skills and alchemy for example, you character is not really any stronger after levelling BUT THE MOBS ARE!!
1) Major and minor skills.
You don't want to level too fast, and levelling is driven by your major skills. Counter intuitively the skills you use most should be secondary skills and the ones you use least should be primary. This also enables you to control when you level.
2) Over levelling and under levelling. When you level you should get 5 points in three attributes as a bonus. This is controlled by how much you have used skills depending on that attribute prior to levelling. There is a wonderful little mod called diary or log or similar which lets you see at a glance how you are doing. If you get less that 3x5 points you are underlevelling. If you have loads of wasted points when you level you are overlevelling. This may sound as though it takes the fun out of the game but it doesn't - you just keep your eye on things.
3) If you don't consistently underlevel you will have no real trouble with the main quest at any level. Especially if you use conjuration. Personally I find the main story line a bit tedious and didn't even do it in my last run through the game. Note that the mages quest series is as long as some entire full price games. Oblivion is very big.
4) With Oblivion you get into the world and live in it doing as you please. You set your own goals. Get all the houses. Explore everything. Make a fortune. Finish the main quest ASAP. Finish the four main sub plots. Become an outlaw and kill everyone. Be a vampire. Whatever. You decide. The game doesn't.
5) Turn off grass. There is an easy console command to turn grass on and off. Unless you have a stonking PC.
6) Addons I like are 1) a nude add-on so that when I kill a mob and loot it, it doesn't look like it is wearing a nappy. I don't get jollies from looking at pixelated breasts. 2) An add-on to make herbs vanish when you pick them, and reappear when they are regrown. This should have been in the basic game. 3) A UI enhancer. This game is a port from a console and it shows in the awful UI and control system.
7) First character I played clocked up over 500 hours play.
8) There is plenty on the internet about this stuff but I strongly advise you to read up on levelling. If you do as I suggest by the time you hit about level 30 you are starting to become an in-game god. If you underlevel seriously badly you will die and die and die and stop playing a fantastic game out of frustration.
9) Alchemy is the key to victory and money. Potions STACK!!! Potions sell for good money. Alchemy should not be a major skill - you use it too much and you will level you character horribly fast with Alchemy as a main skill.
10) Custom magic spells are for me the most fun feature in the game. You can do some truly evil things with custom spells. A word of warning though: Chameleon is a game killer - when you get it high enough you are effectively invisible to all the mobs (even when hittting them) and the game becomes a walkthrough. I have a little rule NEVER to use it.
11) OK let me stress it finally - this game is about improving your character by bulking out attributes and skills. It is NOT about improving your character by improving its overall level. Levelling is just a tool.
12) Save Games: Save often. Make proper saves - don't always use the quicksave. THE GAME OFTEN DOES NOT REPORT A FAILURE TO SAVE A GAME - you think you are covered and you are not. The save games get very big. I ran out of disk space once but was able to keep on saving without the game telling me. I lost many hours of progress. That's what happens when you let console programmers loose on a PC

The save games can be moved around without problem by windows standard utilities so you can archive off save games from your main save directory if required.
13) I never use "quick travel". It is more realistic to walk ride or teleport everywhere. You explore better and can collect herbs etc. Quicktravel is a sop for console kiddies with the attention span of mayflys. (This may be a step too far for some

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PS: OP you really need an extra gig of RAM - !GB is just not enough these days. 2GB will stop paging and give you a much smoother gaming experience.