In Skyrim, attributes may have been removed from the level-up screen, allowing you only to choose from health stam or mana to increase...I'm worried that might exacerbate Oblivion's problem even more, since none of those stats raises damage directly.
I'm hoping that the perks on level up, and the damage bonuses from leveling skills, will compensate for your health gains and your enemy's health gains...but none of us know much about either of those systems as of yet.
Thoughts? Did you encounter this problem in Oblivion?