They never really came right out and said it, but I suspect that a very large portion was. They worked with a university to develop a program that generated the topography. I figure that the whole world was originally generated by the program, then they went back in and hand made their changes. The program took into account things like erosion and time. I don't know if it bothered with figuring out where forests would grow, or where rocks would be placed, those may have been done by them by hand.
I don't know about the rocks, but all the trees/grass/bushes/etc. were randomly generated using the toolkit SpeedTree.
All trees, bushes, grass were randomly generated.
Rocks were handplaced (it was said and shown in a video, I think "Making of Oblivion" or something).
That's it, if I understand it correctly.