well I think all the monsters in the oblivion realms (in the gates) were all loaded and running at the same time. the oblivion gates were just one big cell right? (except the underground parts of course). So if oblivion was able run all that I think it would have been more than capable of running large scale battles. And seeing as how technology has advanced 4 years since Oblivion, I think large scale battles would be very possible in future TES games.
You're incorrect. Not all the monsters are loaded at the same time. The oblivion realms are split up into an exterior cell grid just like any other outside exterior heightmap, and only those cells that are within the vicinity of the player get loaded. The rest is a LOD mesh.
Besides, what's loaded in RAM is completely irrelevant. It's how many dynamic actors (creature and NPC) that are getting rendered to the screen at one time, coupled with how many statics are getting rendered to the screen at one time. You can load massive amounts of crippling data, but if it's not in your line-of-sight (counting seeing through walls) that is represented by your monitor, it won't affect the engine. Yet if there are lots and lots and lots of objects all clustered around in every direction, like a large-scale battle, then Gamebryo has issues.
Fallout 3 is more than a median point between the tech of today and the tech of Oblivion. The same problem exists there as then.