Anti-Aliasing (smooths out choppy lines in the game), and yes you should be able to run Oblivion on around medium settings with that set-up without much or any lag.
Some people find AA really necessary (they cannot stand jaggy edges), others don't (including me). Usually the higher the resolution you can set, the less necessary AA is to diminish jaggy edges. As for game choppyness, AA will only make it more choppy the higher you set AA (if your card cannot handle it).
Some would say that it's the best bang for the buck recently. It's definitely a decent card and compares closely to the 7900GT, spec wise. I find it best when purchasing an new card (or any equipment) to get as much info as possible from reviews. You should check many as they can conflict. Reason I take this approach is because you can get information from those with hands on experience.