The game does support dual-core and hyperthreading CPU's fully, but it's such a graphical beast that you'll be hard pressed to find enough video horsepower to keep both cores happy all the time (i.e. graphics bottleneck).
Even on 7800GTX SLI or X1900XT/Crossfire systems, there are a number of graphical bottlenecks. It's also very heavy on the CPU so you really need a bunch of both (video and cpu/memory horsepower) to play this game to it's fullest... and STILL suffer from quite a few slowdowns.
Im sure patches in Oblivion may help this a bit down the road. Morrowind wasnt much different when it first came out, and now modern cards eat it for breakfast. Oblivion's 3d engine really cannot be played "maxed out" with the various INI tweaks, HDR, AA and high resolution even on the most powerful, $5000 systems (yet..). So, it's a case of tuning the game to perform best mixing performance for eye candy to match your hardware.. and the more hardware, the more eye candy you can lop on!
Speaking of mixing, we've even got the game running well on an XP 2500+, 1 gig, 9600 XT system. You can run it even on very low-end systems, you just have to crank settings down. It's a whole different game on our higher end systems though.. HDR + AA plus 1600x1200 and most settings cranked- it looks amazing.