Oil in general can clog their pores, it's not just vitamin E. That's part of why you have to be careful how much you use, and also why it's not a good idea to use it if there's any concern they may have a skin infection (it can make it worse).
I think capsules are used more often as you can just grab one capsule at a time & not worry about the whole jar of oil being open. I don't know how much of a concern that is & if it makes much of a difference though - people also use things like coconut oil, and I don't know of that coming in a capsule.
I used to use flaxseed oil for Lily's skin. I don't use any oil with my current girls though.
~*~*~ Kelsey ~*~*~
RIP my sweet Lily ~ 6/12/08 - 1/20/12