What are the issues with this type of install as thats where I have installed mine and I have no issues with datafiles or DLC or anything?

If you have a computer with Windows Vista or 7 as an Operating System, UAC (User Account Control?) will interfere with mods at some point, it considers OBSE and many mods to be a virus and will shut Oblivion down.
Installing any game that can be modded to a user made folder avoids UAC, but allows UAC to be active to prevent a virus or other malicious software from ruining your computer, or accessing personal information from your PC.

To clarify a little. There would be no problem with the programs and static data being in C:\Program Files, but Oblivion writes other content there during play and it's those files that cause the issues. The save games have been separated into My Documents, but any option changes, screenshots and a number of other things are going back into the install folder (which affects all players on a shared machine).

As Ghastley mentioned begining with Vista MS increased the security level of that folder to avoid malware writing changes to your program files - when a user writes a file to that folder there is actually a user specific version of the file saved to a user specific virtual folder and then the OS substitutes that changed file for the original each time that user acceses the file behind the scene (that way if one user changes a program file the original file is uneffected but in reality their specific version of that file is changed behind the scene ) -- Good idea but poor implementation because older programs are unaware of this happening and will sometimes use the modified version but at other times under certain circumstances will use the original file or will be unable to find the modified version of the file hidden by the OS in your virtual folder and this creates problems since the OS will not allow the original file to actually be written to thus creating a conflict between the OS and your game with each trying to save your modifications to different files that are being interchanged at runtime creating a situation that eventually causes either the program to corrupt itself, the system to lock up, or your file changes to be lost in Limbo.

So to avoid having to deal with this it is suggested that anytime you install an older program that was not designed to run under Vistas virtual system that you avoid using the high security areas and instead install them to a lower security area. (you could also turn off UAC but that would also defeat the higher security and leave you open to more infections - so is not recommended)