i just upgraded from a 9600xt....it should be able to play on mid settings w/ oblivion. I did have a problem with the colors being washed out but i think thats b/c i didn't update my video drivers on a regular basis like i should have.
Get the 9600xt and download Old Oblivion http://www.oldblivion.com/
The patch will maximize the game to run on older video hardware like that card so you can turn the settings up higher.