Going to need a bit more info here...did you uninstall/reinstall Oblivion in between going from XP to 7? Where is Oblivion currently installed on your HD? If you haven't reinstalled Oblivion in between your OS upgrades, that's the first thing I'd do. Back up your mods first but don't add them into the fresh vanilla install from the get-go. The first thing you need to do is get vanilla Oblivion working like it should.
Windows 7 also has a little bugbear called UAC (User Account Control) that tends to cause more problems than it solves with games, especially modded ones, that are installed to the C:\Program Files or C:\Program Files (x86) directories. When you reinstall, try installing Oblivion somewhere other than the default location (IE, Program Files). All my games are in a separate folder on my HD (C:\Games) for that reason.
When you reinstall you might also have to http://sites.google.com/site/oblivionpoinfo/troubleshooting/regenoblivionini, even if it's a "fresh" version of Oblivion. (I ran into that problem the last time I did a fresh reinstall--Oblivion kept crashing straight out of the box. Regenerating the .ini fixed it.)
Not sure why your options / settings would be greyed out in the launcher. That suggests to me that your install's been corrupted, but someone else might know better.