Yeah, you're probably right. Hopefully it's just because of a short view distance on shadows because it's on an Xbox.
I don't think that's the case at all, and I think you're drawing negative conclusions about the consoles capabilities there. Oblivion runs better on the consoles than on any PC I've seen, some of which are fairly good by modern standards.
Anyway...
Firstly, there is not too much light coming in to this valley, though you can see it is brighter on the tops of things than the sides and bottom. Also, given that the light is coming from almost directly upwards, there isn't much for the shadows to fall on. Apart from trees, which are very thin anyway, so probably wouldn't cast a lot of shadow in that light, you can't really see anything that would cast a shadow. All surfaces that shadows would appear on are out of view.