The chaps over at TweakGuides just published their Elder Scrolls IV: Oblivion Tweak Guide. This guide has been compiled to draw together all the working tips and tweaks, describe all the in-game settings in detail, provide all the useful console commands and give a range of troubleshooting and general performance advice in an effort to provide a single easy-to-use accurate reference source for Oblivion tweaking. Here's an excerpt:

Basically, the Gamebryo engine (discussed further below) seems to have an issue which means it can saturate your CPU and/or Video RAM with pre-rendered frames (whole screens ready to be displayed). On most systems this results in very noticeable mouse and/or keyboard lag, even when your FPS is reasonably high enough not to usually suffer from this (e.g. 25-30FPS+). By reducing the maximum number of frames to render in advance, you reduce this bottlenecking effect and hence significantly reduce or remove the mouse lag.

However, here's the important part: this is not a tweak for improving FPS as such. The general recommendation to set 'Max Frames to Render Ahead' (or 'Flip Queue') from its default of 3 down to 0 will actually reduce performance on many systems, particularly Dual Core or HyperThreading CPUs. Secondly, even on single core systems, you may notice reduced performance in certain areas. So on balance I strongly recommend setting this value to 2 to start with, and if you still have mouse lag, dropping it down to 1. Remember, not all mouse lag is due to this setting: in areas where you have very low FPS (i.e. below 10-15FPS), you will get lagginess - this occurs in virtually any game where your FPS drops down to the low teens or single digits. You will have to consider changing other settings to increase overall FPS.

Note: Many interesting tips can also be found in this thread.