Instructions
Download the appropriate controller driver from Microsoft's website.
Open Notepad or another text editor, and then open the Oblivion.ini file located in "My Documents/My Games/Oblivion."
Find the Controls section of Oblivion.ini, and edit the controls found there. Change fJoystickMoveFBMult and fJoystickMoveLRMult to equal 2.0000 instead of 1.0000, iJoystickLookUpDown to equal 5 instead of 6, iJoystickLookLeftRight to equal 4 instead of 3, and fJoystickLookUDMult and fJoystickLookLRMult to equal 0.7500 instead of 0.0020.
Save the edited Oblivion.ini.
Run Oblivion. You should be prompted to map the controller buttons. If you are not, you can edit them manually in the Options menu under Controls.