I think some of you may have forgotten how it actually was in oblivion, a creature would simply spawn meters away and if you took a step backwards, it disappeared. THAT drawing distance needs to be bigger, it doesn't matter if the landscape can be seen a long way, if we cannot see the creatures.
I can honestly say never I've never experienced anything like that in Oblivion on the 360. I could see creatures plenty far away most of the time.
The farther they can make it, the happier everyone will be, but not to the point of affecting the game's running speed. In short, if what they have in those shots is what it's going to be, so be it.