The 3450 will be fine at low to medium settings, but it still does depend on resolution. You have to tweak to find the best fit.
Sure you could run at 1280x800 or 1440x900 with grass turned off and everything turned down low, but is that really a good Oblivion experience?
IMO it will depend on the resolution you are targeting and for such a card I would say target something that is a 4:1 ratio scaling resolution, it keeps your image fairly crisp without interpolation yet allows you good performance while keeping features enabled.
So for 1280x800 that would be 640x400 and 1440x900 is 720x450, you need to tweak the ini file for some of the resolutions, but that's how I tend to play stressful games if the card won't handle native resolution with the settings I prefer. Crysis is the one I have to play at 720x450 when enabling all DX10 features.
For native resolution at medium settings you will need at least the HD3650, and even then it will be tough in Oblivion for anything above 1280x800 IMO.