I think the reason why people shy away from using "My Documents" is that while it solves the UAC problem nicely enough, "My Documents" is also a special Windows folder which is treated differently from most.
How is it treated differently?
Aside from the backup issue, which you've gotten around, there's also the fact that it is owned by the account it's registered with. So if you have multiple accounts on your computer and you install under "My Documents", Oblivion won't be available to any other persons account by default.
Obviously not a problem if you only have one account on the computer.
Yes I have only one account and was basing my advice on a simple account under Vista. You may have a point, though I've never had more than a single user account so can't really say one way or the other.
All I know is, that in my experience, that for a single user account on Vista, installing Oblivion under the C Documents drive causes no problems (as long as windows backups are disabled, as already noted).