aye read the tweak guide and follow it closely, especially for configuring your oblivion.ini file.
also i assume oblivion has auto detected and adjusted your sliders?
you'll have to do this manually for best performance. trial and error im afraid.
tweak guide shows you the difference for each setting though.
the stutter/lag is load cell buffers loading whilst you move around, its only really apparent whilst outside. i've been playing with this a lot lately. here's how to alieviate it.
firstly folow the tweak guide. he suggests .ini cell buffer sizes for given amounts of ram and an overall preload size. adjust to suit. (note increasing values above his guide values does'nt do much.
adjust your texture size accordingly for video ram. the large setting caters for 512. medium 256 and small 128. these do make a difference as textures chug thru. if you are using a LOD texture fix such as Quarls or Shajas you really want 512 and fast video memory.
i have yet to play with agp aperture size to see if this effects things. (bf2 had a marked performance increase with 256 set)
move your pagefile to a seperate disk than the os. ensure it has fixed size. eg 3072 min and max for 2 gig ram. (set a small pagefile 2-50mb on your os disk for safetey - bigger one used by default though)
move oblivion onto a fast disk which does'nt have your os on.
basically you're trying to streamline the massive and constant data flow between harddrive/pagefile and ram. oblivions open world means its always updating (hence changing loadcell buffer sizes)
make sure the multithreaded options within .ini are enabled (tweakguide)
tweakguide/fast gaming disk/seperate pagefile testing of graphic settings should get you running smoothly.
i think even with the best hardware in the world, whilst maxed out at hi rez oblivion will still stutter occasionally. it is a beast on your hardware.
look upon it as a labour of love otherwise you'll go mad
let us know how you do