There is a technology that oils paper filters Jaffa, and it works when it is done that way, whatever that way is (the paper finishes up a pink colour). I suspect it involves using paper of an extremely, open porous nature, then oiling it very lightly with a very light oil. Obviously a soaking in engine oil, though, will stop any air getting through an ordinary paper filter.
If the engine will run without the filter in place, but won't run with it in place, the filter is blocked. The same thing can happen just through dirt accumulation, if an engine is used in a dirty environment without the air cleaner ever being replaced or serviced.
The big advantage of paper filters, in my view, is that if you use an oiled foam pre-filter in front of them, the paper part lasts pretty much forever and you can be confident that the engine is not inhaling dirt, so you can have your cake and eat it as well. Eventually the urethane foam pre-filter disintegrates due to the effects of oil on urethane, but then you can make a fresh pre-filter out of a very few cents' worth of foam.
