My understanding of Oblivion for the 40 or so hours I played it, is that you have to try to use only two or three skills per level so that you get the max points per skill per level. After about 20, if you haven't specialized, then you will be unable to kill the monsters unless you go grab one of the superweapons.

Do a check online for Baldur's Gate/Neverwinter Nights. It should let you know if those can be supported by direct ip connection. My networking experience is far behind me, but it may be that you need a router in order to handle multiple ip addresses. It is worth checking in to.

Also maybe look for multiplayer rpg's on something like gamespy.