I got the problem fixed. Just had to keep plugging away at it, but eventually it installed. It kept failing on the install at the same point till about the tenth try then it went a little farther and failed, Tried again and it got a little farther. Tried again, yep you guessed it a little farther. Finally after the umpteenth time it finished installing. Though I did have to kill the installer cause it froze up at the very end, but at that point it was only dumping temp files. So after forcing that to close and doing a system restart I got it to run. Though I did learn very quickly I can't just quit from gameplay I have to quit to the main menu then quit the game or else it crashes. Hey whatever it plays thats all that matters.
Try Regenerating the Oblivion INI - http://tesivpositive.animolious.com/?page=know_how_to#RegenerateTheOblivion.ini
Also, try a clean boot - http://www.ehow.com/how_5331553_clean-boot-windows.html
If those do not help, post a Dxdiag - http://tesivpositive.animolious.com/?page=know_how_to#PostYourDxdiag
Are you using any unofficial mods?