The most common reason for freezes during 3D is overheating. Have you overclocked the CPU or the craphics card? If so try to lower it a bit.
I play with everything on max (1280x1024 which is max for my 19" LCD), with AA/AF set in ATI Control Center and HDR enabled in game, and have no problems what so ever.
I did however have some strange freezes and other problems with most games a few weeks ago. A BIOS upgrade fixed everything (have a brand new MB). Check and see if there a new BIOS available for your motherboard if it's been a while since you last checked.
I also notice that Oblivion uses quite a lot of memory like you suspect. I have 2 GB, and mem usage is 45-60 % while playing Oblivion (have a CPU/RAM usage indicator on my keyboard).
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Do not take me for a conjurer of cheap tricks!
Gandalf
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