I've been playing a lot of Morrowind lately, so I'm not too sure on the leveling system with Oblivion.

In morrowind, all your skill gains went to that level only. I noticed in Oblivion though that my skill gains also transferred to the next few levels. But since I'm already 4 levels ahead of where I should be, it seems that none of my multipliers are going to my next level up. Is this some glitch, or is this Bethesda's way of stopping the abuse of the level system?

Skills gains toward attribute multipliers stop accumulating when you have enough skill ups to level.

Do they just transfer over to the next level instead then?

I think you just lose them..... according to popular theory, they transfer to the next level, but, from my observation, it doesn't always work that way.

I got around that by changing a setting in the oblivion.ini, (I play on PC) that levels me as soon as I have the points. Don't have to rest. It just happens. Not always at a convenient time.

It looks for me that it actually transfers over since I still get multipliers for my other levels without doing anything. Unfortunately I'm playing the 360 version so I don't have the flexibility to do changes.