So, I’ve got the following list containing a nonessential phrase (“ultimately”), non-Oxford comma:
stifling curiosity, creativity and, ultimately, progress.
Is it then correct, when converted to an Oxford comma, to end up with this monstrosity?
stifling curiosity, creativity, and, ultimately, progress.
Yes. You are applying two distinct comma guidelines consistently:
The commas around a nonessential element. (Purdue OWL has some examples.)
Commas (including the serial comma) separating items in a list of three or more elements. (Number 5 in this list.)
There is no standard guideline for what to do if the application of multiple rules leads to a clusterfudge of commas. Whether you would rephrase or omit the serial comma in your example is an editorial decision. I’d suggest rephrasing if I have a stylistic concern. However, the New Yorker wouldn’t; in an article entitled "In Defense of ‘Nutty Commas,’" they justify both the use of the serial comma and a low hurdle for considering something a nonessential element. So they have:
“I invited my boss, her nephew, and my acupuncturist to the party.” (straightforward serial comma example)
“Before Atwater died, of brain cancer, in 1991, he expressed regret …” ("of brain cancer, in 1991" is treated as a pair of nonessential elements)
Whatever you choose, be consistent.