Cant seem to get anti aliasing to work in Oblivion with a 5870. I'm curious as to whether its a driver issue. Does anyone have AA working with Oblivion with a 5800 series card?

Do you also have HDR enabled? If so you cannot enable anti-aliasing. But I believe it worked when you enabled anti-aliasing in your catalyst control center and enabled HDR in Oblivion. (you will still see anti-aliasing off in your oblivion settings but it is on )
I also read somewhere something about a chuck patch but not sure if it helps.

Chuck patch is integrated with all newer ATI driver versions now. For your Radeon 5870, all you have to do is enable AA in your CCC, then HDR in-game as already mentioned. Should work.