Another possible problem is that Oblivion is reverting your .ini change back to default. This happens frequently to many players. To force the game to accept an .ini change type saveini into your console.
Along the same lines, make sure you have been editing the proper ini file. You one you want to doctor is the one on "C" drive where your saves are housed, NOT the "default" one in your Oblivion directory. Touching that is a no-no, though if all that is done to it is switching screenshot modes then no real harm has been done.
-Decrepit-