The launcher *launches*, but all the options but "ElderScrolls.com" are greyed out and unclickable.

I can run Oblivion.exe directly, but cannot run initial setup or customize things like resoltuion.

Any idea WTF is causing this? I've had Oblivion on Steam for years and I've never seen this issue before.

So, how do I "add new String Values" for this? For someone who's never used the Registry before, can you please explain what I am supposed to do?

Here is how it looks with Win10 64bit.
You run regedit and expand HKEY_LOCAL_MACHINE, then SOFTWARE, then WOW6432Node, then Bethesda Softworks, and Oblivion.
See Pic.
If it already has a Installed Path string, then right click on Installed Path an choose Modify.
Then enter the correct path
See Pic2.
If there is no Installed Path string, right click over on that side and choose New> String Value.
It will say New Value #1, backspace and type Installed Path.
Then right click on Installed Path and Modify, to type in the correct path to where your game is installed.

Hello, I have the same problem but when I run the regedit and when I go to Bethesda Softworks I have only Skyrim there but I am sure I have Oblivion installed. I can open it and play it but for some reason I can't open it from the launcher, any ideas? Thanks in advance.

You can't play Oblivion when you run the launcher exe, but it works when you run the oblivion.exe directly? I remember an issue that Oblivion crashed when I clicked "Play" in the launcher menu, but this is different from what you describe, and my issue was a temporary one, lasting one or two days, and I still don't know what caused it - probably related to my PC.
Be this as it may - it's highly unlikely that you are able to play Oblivion without its registry entries, and I'm convinced that the registry key mentioned by Thiev in an earlier post is there. Have you searched for "Oblivion" directly (depending on the size of your registry the search may take a while to return something, and there may be many Oblivion entries you are not interested in - be patient).
Regarding your problem: Consider un- and re-installing Oblivion.
Or be more specific: GOG version? Operating system? Mods installed? Has your Oblivion installation ever worked? If yes, what was your last Oblivion-related action before you noticed the problem for the first time? Have you convinced yourself that your morrowind.esm (and possibly other esm and esp files) sit in the Data folder underneath the main Oblivion folder? ...

I went to the Bethesda directory and oblivion wasn't there, so I created an oblivion key myself and made the path file inside of it and that fixed the grayed out option problem.
-edit
Nevermind it can't find the actual game

There is another option. What you can do is a clean of your registry especially if you've had Oblivion installed before or if it installed incorrectly.
1) Uninstall Oblivion
2) Run a registry cleaner program like ccleaner. With Oblivion not installed it will wipe out all orphan registry entries.
3) Install Oblivion(make sure it is outside of program file)
4) Play!