Currently mine is set to the default 5. Is it best to up it in the ini file or just get a lod replacer?

Suggest you read the Oblivion Guide at 'http://www.tweakguides.com/Oblivion_1.html', especially 'Advanced Tweaking part 2' on page 9. Regardless, if you are using mods, you will almost certainly need to use TES4LODGen and TES4LL (they work on different aspects of the LOD).

-Dubious-

I have already read it.

My question wasnt really anwsered.

Seems to be better to use uGridDistantCount and uGridDistantTreeRange instead. Not sure what's unclear about the link Dubiousness gave though?

Not the link thats unclear. Should i not bother editing anything to do with the grids and just use a lod replacer?

If you are trying to make things visible from further away I would suggest using http://tes.nexusmods.com/downloads/file.php?id=20053 and editing your uGridDistantCount and uGridDistantTreeRange to something that runs well with your system. Don't edit uGridstoload. It causes a bug where your character gets stuck in the landscape and bounces up and down.

I agree with mcc84. I used to edit the ini file, but i now just use RAEVWD.

You do NOT want to change uGridsToLoad from anything other than the default of 5. Doing so tends to break the local map.
(The local map will stop displaying icons, and your player's position, when it "breaks". The local map itself will also be off-centered.)

Upping uGridDistantCount and uGridDistantTreeRange (and their City equivalents) will help somewhat with LOD, but if you really want a high-end LOD you'll need to combine RAEVWD, the LOD mod that ColourWheels just released (I forget its name), and TES4LODGen.