The same view as wireframe, to see the LOD algorithm in action:
Moved slightly forward from previous position, note the slight increase in detail at the bottom of the slope at the center of the scene as the camera has moved closer to it:
EDIT: Oh, During my research I did find out how oblivion handled distant objects/meshes (such as the main tall tower in the middle, for those who have played the game) - they have a separate lower-detail mesh that is rendered when the 'far view distance' option is enabled. They don't perform collision detection or anything on this mesh. I do not know how they handle distant landscape though, that is what I am interested in for now.