I decided to get the download, so i dont have to keep taken out the playdisk in order to play the game. I was told i need to install the game outside \Program Files (x86). So when i bought the game from Steam, look like i dont have an option to place the files other than i mention above. Have anyone having problems running this game from Steam?

It's highly recommended to install any Steam game outside of C:\Program Files(x86) folder due to UAC in both Vista, Windows7 and http://www.gamesas.com/topic/781497-vistawindows-7-problems/ is the information you need to know about that.

Of course you have an option to install Oblivion anywhere you like except for the reason I mention above and the same thing also applies for Steam too, because 1-2 years ago Steam change their policy for installing games via Steam to allow you to select any installations path you want.

All my others game seem to run fine with Steam, but wasnt sure about Oblivion. Is it possible to drag the folders elsewhere? Of course i would need to make another shortcut to launch the game. When i try to install the game, i didnt see any options to install in different path.

Is it possible that you haven't updated your Steam client in over a year?
It should look http://i.imgur.com/5tUc5Ii.jpg (sorry it's not in English, it looks the same though). Instead of the default installation path you choose the second option and create a folder elsewhere.

Hmm let me try that, since going out shopping soon for Black Friday, let Steam download it while im out. Since it take around 30-40mins to finish download. Believe my savegame is in \My Document so i wouldnt have to remake my character.

There's no need to re-download the entire game. Just move your Steam.exe file and your SteamApps folder to the new location, then run Steam. It will log onto the server and add any other files it needs to run.

Well i been playing for 11 hours and still no crash, funny i didnt except this to happen.