is 'o' the only preposition that could be used here? I mean, shouldn't there also be 'ob' (like in Russian) in order to avoid awkward vowel combination here. (Like, for example, 'w krakowie', but 'we wrocławiu').
There is no alternative option for "o". Even if it's preceding another "o". It's pretty pronouncable: Rozmawiamy o Oli, pamiętamy o oknach... no problem here. You can make it a long 'o', you could make some pause as well.