I've tried using xpadder but the controls lagged. I've enabled joystick in game and the right anolog is incorrect up is right, down is left and vice versa. Is there a fix for that? The only problem I'm having is with the right anolog stick. I am using a PS1 controller that is plugged into a PS to USB converter if that helps.

Look in your oblivion.ini for a setting something to the effect of 'backgroundkeyboard' or some such. If it is 1, change it to 0, or vice versa.