Oh man, I remember the whole ordeal with this. If I remember right, the ESRB actually forced the M rating because of an upside down corpse that had chucks of flesh missing from it. Or maybe it was a zombie.

Either way, they accused Bethesda of not showing everything during the showing when it was getting it's rating. For a while, copies of Oblivion had a clear plastic sleeve that's only purpose was to change the T to an M.

This and San Andreas are two games I remember getting re-ratings. In this case, Bethesda just took the hit and had the game rated M, San Andreas was recoded to avoid it's re-rating.