Is it possible to set up a YP railcard on Oyster prepay, so that if I
use
it the maximum I would pay off peak would be 50p cheaper than the
cheapest
travel card ie £4.30.

I can buy a paper ticket zone 1-D off peak for £4.80

No. If you are studying at a London University you can get an 'Student
Oyster Photocard' that gives you 30% off weekly and longer tickets. It
can
also hold PAYG balance, but there is no discount.

Will this need to be addressed now that the mayor wants all the TOCs in
London to accept Oyster PAYG?

I doubt it. Oyster off peak fares are £1 for journeys outside zone 1. I
wouldn't expect those to be further discounted.