I have had a similar experience once after patching the exe. I ran the test and it crashed at 1.8GB. I then patched again and was able to go above that. Consider it a fluke I would say. I use OBSE launcher.
Oblivion was using not quite 0.7GB when it crashed.
Sounds about like my first fiddlings with it after upgrading to Windows 7. Had to find the sweet spot with OSR and the heap size. Heap mode 5, 1024 heap size, and the game has been stable as a rock ever since, only crashing when I'm testing and leave too much junk running in the background.
I have not given up on this yet, but I have to fight with Win7 before I can even continue installing anything...