Umm... in real life, most animals do not run away with a simple injury, at least not predators. Try injuring a bear and see what that gets you.
Or a wolf, for that matter, let alone a big cat like a mountain lion. (ouch!)
NPCs usually try to pick up whatever has the best attack value. However, in the case of hand-to-hand, the weapon available may not have as high of damage potential as their own attacks, so they may stick with their own attack even if it doesn't make much sense.
Then again, the collision detection in Oblivion is horrible. There's no real detection of the third dimension and I often have enemies hit through solid rock, even if you are standing 10 feet above them. Very silly.