Should I go all the way and go with an i7 quad core?
Nope.
Oblivion doesn't use four cores, not even when the operating system is doing minor stuff in the background. Two, maybe three tops, even then. Simple as that.
So yeah, eight threads is about as useful as, oh I don't know, four power supplies or something.
An i3 will be as good as an i5 will be as good as an i7, for the most part, if clock speed (turbo factored in, and no doubt running) is roughly equal. You can apply the same logic to the AMD range, and they're basically as good as the Intel offerings for games like this, only cheaper (especially when including the cost of the motherboard needed).*
* For desktop, that is. But then, for notebooks, I guess power usage is key... might be worth checking idle and load power cunsumption of the various notebook CPUs...