Your system is definitely fine for playing on Ultra High settings, but during battle, the CPU is taxed more. I do not know of a processor running in consumer hardware that can run Oblivion without stuttering, either due to being under too much pressure or (at the high end) Oblivion not being optimized enough. I do not see how reducing your "active" cores would help, unless you are seeing significant speed boost by doing that.
Getting a sound card would help out your processor a lot. In the mean time, apply these tweaks for on-board sound - http://tesivpositive.animolious.com/?page=oblivion_ini_tweaks#OnBoardSound
If you want to try adding a couple of unofficial mods to further help - http://tesivpositive.animolious.com/?page=stabilization_and_optimization_mods <-- You can learn about mods and how to install them by looking around the site. The main menu is ordered logically to that end.
Alright, ty Tom, I'll have to try out the tweaks tonight or tomorrow, had to uninstall because of a corrupt file.
When it comes to the reducing active cores, I just read somewhere that Oblivion was meant for single core ssytems and that if you changed the affinity to 1 or 2 cores, performance would increase.
I'll get back to you as soon as I have everything reinstalled tonight!
Now, if I could get a reply on my fallout 3 problem on the fallout forums, my day would be made xD