So, I had this exact same problem and it was driving me up the wall. Someone recommended that I make sure my ini file was properly named if I had been messing with it. (show file extensions for known file types, make sure it isn't named Oblivion.ini.ini).
That wasn't the problem exactly, but, when I installed Windows 7 it carried over some of the "My Documents\My Games" folders from my XP install (even though I didn't upgrade) and I had an old oblivion folder in there.
Deleting that set of saves and ini files (just deleted the entire folder) fixed my problem.
So there you go, check your ini files, try renaming your Oblivion folder in My docs\my games folder and see if it starts for you.