What can I do to optimize my ram and CPU usage?

I have 4gb of ram
3.14ghz Core2duo 8500 CPU
Windows 7 RC

Optimize your system or optimize the game?

Questions about optimizing your system may be better asked on forums dedicated to that.

As for optimizing your game install - did you try searching the word optimize. Read the hardware forum (may be more suited to the question).

For optimizing game:

Newer answers:
http://www.gamesas.com/index.php?/topic/1091580-tesivpositive-performance-optimiation-stabilization-information/
http://www.tesnexus.com/downloads/file.php?id=23208
Make the exe Large Address Aware (good mostly for 64 bit quad core systems). http://www.gamesas.com/index.php?/topic/1076274-oblivion-and-physical-memory-usage/page__hl__large%20address%20enabler http://www.gamesas.com/index.php?/topic/1071593-oblivion-w-laa/ http://www.gamesas.com/?showtopic=1071326&st=0
http://cs.elderscrolls.com/constwiki/index.php/TES4Edit_Cleaning_Guide
Learn to eliminate background processes/services. The http://www.blackviper.com/ site teaches much about this.
http://www.gamesas.com/index.php?/topic/1084204-bain-mod-installation-projects/

Older answers (still some gold in these):
http://www.gamesas.com/index.php?/topic/881204-the-oblivion-performance-project-topp/
http://www.gamesas.com/?showtopic=762701&hl=
http://www.uesp.net/wiki/Oblivion:Technical_Support

Then several of the knowledgeable folks on Fallout 3 forum have been http://www.gamesas.com/index.php?/topic/1093301-performance-mods/. I'm wary of these things, but have used priority master to make the game get more priority in resources. Can't say I've seen miracles.

I'll check the hardware forums.

Is there anything I can do in specific that will help oblivion to utilize both cores better and all of my ram?

Read up on large address enabler.

Is your system considered 64 bit even though only two cores? Not sure if large address will help if it is not.

That handles ram better (you will get 4 gigs usage - I do.

As for multi-core - seems that even though there are ini settings for multi-thread the game engine does not do multi-threading. Many have mentioned success at reducing multi-threading instead of trying to increase it. That is where killing background processes and using a priority setting program might help, but again I've not been blown away.
The game requires 2.0 for a cpu. You have 3.14x2 - pretty good.

Have you got Oblivion Stutter Remover? Single best thing I've used.

Video card may be bottle neck too, but seeing as you have that cpu I'm guessing at least a gig of vram.

It's all good now, I got my average framerate around 45fps. I just had to delete RAEVWD.