This may be a stupid question but I recently started dismantling my engine (1600 engine AD) and when I took the air filter off I found it to be filled with oil.

Any ideas?
Air filter was stock like this one

It's an oil bath air filter. It uses the oil to filter the incoming air.

ah thats a little reassuring. Are these useful to keep for offroad work or do you suggest a air filter mounted high up?

I have no idea An offroader person would have to help you there.

It depends on how "offroad" you go, if your looking to launch over 3' jumps etc then no its just going to spill oil everywhere, fit a quality filter like K&N and service it occasionally and you will be fine