Photon mapping isnt used in realtime. You'll need supercomputer for that. Oblivion landscapes is using simple shading. Gamebryo (Oblivion engine in case if you dont know) never had support of Photon Mapping. Those what you seen in early Oblivion demos in jail with shadows on objects were just usual soft shadows.
Z-culling which is a part of z-buffering can hide source of lights and models which isnt visible (behind the wall, out of fov, etc).
Lightmaps is the fastest algo for fake static shadows. Was used in 99% of 3D action games, until PC became more faster for realtime shadows for everything (see Crysis).
Realtime Photon Mapping is a dream for not too distant future, as I said earlier. Modern top PCs will fail to render complex enviroment like in Oblivion at least with 1 fps. Even top modern engines dont support photon mapping, current pcs are too slow for it. Its only available for software renderers.