Does anyone have any idea what could be causing this?

http://s164.photobucket.com/albums/u7/OminousVoice/?action=view¤t=ScreenShot0.jpg

http://s164.photobucket.com/albums/u7/OminousVoice/?action=view¤t=ScreenShot2.jpg

I'm running a Radeon HD 4650, 3Gb RAM, an Athlon 64x2 2.5ghz on XP.
Texture size is set to large, AA0, AFx4.

I haven't tweaked a single setting or ini variable since playing it last. I simply loaded it up and I got this washed out mess. This isn't the first time I've had this, but last time simply restarting the game fixed it. That's not working now.

simple answer, but have you restarted the computer?

Yep, several times.

Not sure what this is, but the first thing I would do is Exit Oblivion, then try renaming or deleting the oblivion.ini file (...\My Documents\My Games\Oblivion\Oblivion.ini)

Oblivion will then redetect hardware. It will also, probably, not recognize your video card and set everything to medium. Just change the settings according to what you think your card will support (You can always change them later)

Deleting the oblivion.ini was one of the first things I did. The problem persists. I don't think it's .ini related.

It looks like the textures have somehow been reduced to absurdly low resolutions.

I've updated my graphics drivers, tweaked various settings in ATITrayTools, but to no avail. Is there something I've overlooked?

Shader problem, perhaps?

Try re-installing the shaders:

http://www.tesnexus.com/downloads/file.php?id=20348

I tried that. No change.

UPDATE: I've determined that this problem is not specific to Oblivion. I have the same problem when runnng other games. So it's definitely something to do with graphics hardware/software set up. I just don't know what specifically.

UPDATED UPDATE: OK, I think it's fixed. What I did was uninstall CCC 11.2 and forego the use of DriverSweeper. I tested the game after uninstalling and it displayed perfectly. I then reinstalled CCC 11.1 and have yet to see the problem resurface. I've no idea why it worked but it apparently has. With luck it'll stay that way. If not, I'll be back.

I appreciate the help guys, thanks.