After having not played Oblivion for a while, I decided to load it up a few days ago. I was playing with HDR on. Using the Alternative Start mod, I arrived at Anvil. I first noticed that everyone was bald, which I simply dismissed as being minor. Then I started seeing big yellow blocks, indicating missing textures, in the landscape, particularly when crouching near an NPC. When I viewed my own character, I saw yellow lines coming out of his eyes, and he was also bald. When entering the lighthouse, I saw that the windows were yellow as well. The game then crashed to desktop.
I then decided to use Bloom instead. This worked better, but during bartering the game froze. I could not Alt-Tab, and then eventually had to hard shut down.
Today I tried Bloom again. This time however, it was worse. There were now missing textures with Bloom lighting as well. After a few minutes the game crashed, but this time everything appeared to be in 640x480 resolution and 256 colours. I have no idea what could be causing this, especially as I had almost no problems with Oblivion prior to starting a new game. I also had the same graphics card and set-up as I do now.

My specs:
P4 2.8 GHz with HT
Nvidia 8400 GS 512 MB
1 GB RAM
DirectX 9
Windows XP

I also had Xfire running in the background. Aside from the UOP and USIP, my only mods are LOD, Alternative Start and Playable Sheogorath.