This has been asked many times. It is because they don't want violence against children.
My understanding is that it is because Oblivion is such a big game that adding more NPC's would have taxed the system too much. I think they were thinking of adding them but decided against it because it was unnecessary. I think this is the reason why there just aren't that many NPC's populating towns and cities in the Oblivion world. Cities do seem a bit bare in population when you think about it. I think it would have taxed the system. I believe I read that somewhere.
In Fallout 3 there are children in the game. Some are a part of quests and some are not. But there is no way to kill them or even draw a weapon on the them. There is some kind of "lockout" in the code from doing this. This is on the PS3 and 360 versions. I am sure there are mods on the PC for a workaround if you wanted to be violent towards kids.