Just stepping on, since I did an Oxford MSt last year (though a different strand.)
I have no idea how programs in general "perceive" the degree, other than to say I did fine on my apps this year. Oxford in general is perceived as a little stuffy and traditional on this side of the pond, though that's probably a more meaningful critique in my period (contemporary) than in yours. What I will say is that trying to apply while you're doing the program is a nightmare. It is a rigorous and intense nine months, the applications I did last year were *much* worse than this year's, where I had the time to think and write, and it'll take away your attention from actually doing the coursework. So, I'd suggest waiting until after. I don't think programs care about "gaps" like that as long as you're doing something productive in the interim (like working on foreign languages or something - literally just half a sentence implying that you haven't checked out entirely.) Honestly, I think the most important thing is not to worry much about how the program "looks." I cared a lot about that last cycle, and it only made it worse when things didn't work out. The true value of a Master's program is helping you learn to think like a grad student in that discipline, to help hone your writing, to teach you additional skills, to give you a chance to produce grad-level work you can use for writing samples or article submissions, and to have a nice community to socialize with.
In the faculty, the pass grade is 60, with the possibility of a distinction, which you get with either a 70 across all assessed elements (3 coursework papers and the dissertation) or a 72 average on the 3 shorter papers and a 68 on the dissertation. Something like 20-25% of the whole group, across all strands, got a distinction last year.
If you're paying, one vs two years is not nothing, and Oxford has a lot of ways to pick up extra money here and there, or get studentships. There's a research and travel fund in the faculty that gives 400 quid over your grad career at the school, which is great if you're only there for the Master's and planning not to stay on for the DPhil; lots of colleges give more research money or even full studentships, etc.
For me, the Oxford degree did five major things:
(1) It let me solidify my interests in my specific national literature, coming from another related discipline;
(2) It gave me venue to draft the paper I ended up using as my writing sample, as well as a decent pool of other materials I've used and will use for articles and conference presentations;
(3) It's how I met my course convener, who ended up being one of my letter writers and has been a gem of a mentor throughout the application process;
(4) It gave me the chance to decompress from, and work through some lingering feelings from, a somewhat tumultuous and stressful experience in college; and
(5) B-course.
Oxford does postgrad socializing and pastoral care like nowhere else, via the college system - I had friends in my strand, in my secondary temporal strand, throughout the English program, and in my college, sometimes overlapping but never completely, and it made the entire experience feeling much less competitive and stressful than it might have been otherwise. The 650-1550 strand was particularly excellent - though I work on a completely different area, the Medievalists were always brilliant, friendly, and hip, all at once, and Oxford's collections are unrivaled when it comes to your period. The new rare books library is massive, beautiful, and remarkably well-organized, though with the standard bit of British fussiness you wouldn't find, like, at the Beinecke at Yale or the Houghton at Harvard. Likewise, though I don't know how much bibliography or material textual studies you've done previously, but the B-course was worth the price of admission alone - it's one of Oxford's great strengths as a department and is an incredibly helpful skillset to have going into graduate study.
tl;dr Oxford is excellent at social life, collections, and book history; the medievalists there are great; one year is cheaper than two; and most importantly, think about what you'll get out of whichever program you choose intellectually and personally far before you worry about "how it'll look," since at the level you're looking at it's basically a wash.