It sounds like you didn't get the +5 bonuses for your attributes very often and the monsters have outpaced you. I've played games at 25% before, there's nothing wrong with that and it doesn't penalize you. In fact, for certain battles when you have NPC's helping you, you'll have to turn down the difficulty slider to keep them alive, if you care about that. I usually turn it down to zero in those cases
However, if you want to keep pace with your enemies throughout the game, you will need to get the higher bonuses when you level. Here's a http://www.uesp.net/wiki/Oblivion:Leveling with an explanation. There's probably a link on that page to something called efficient levelling if you really want to go for it. I normally aim for efficient levelling, but it does take a lot of the fun out of the game and now I use a mod called Oblivion XP instead