Skyrim is out but I can't justify buying it at $60 when I know it needs patches and mods to reach its full potential. And it will go on sale on Steam eventually. However, I never played any of the DLC for Oblivion and Steam had a weekend sale not too long ago and so I bought it all for $6.24. The last time I played Oblivion was in 2006 when it was released, and since I didn't enjoy it as much as Morrowind I didn't play it again. I still have the collector's case and Imperial gold coin sitting on my desk though. Now that years have passed and there are a ton of mods out that fix my issues with the game I've decided to play it again, with a lot of mods, and experience the Shivering Isles expansion for the first time as well. Here's a list of the mods I think are essential for anyone playing Oblivion in 2011 and 2012.
I'm coming into Oblivion modding as someone who is completely new to it. I modded the hell out of Morrowind back in the day but since I lost interest in Oblivion so quickly I didn't keep up with all the work the modding community has done on it. The game is much more fun now, and even if you don't use the gameplay altering mods the many unofficial bug fix collections pick up where Bethesda left off.
My recommendations may not be as complete or good as those of someone who has been neck deep in the Oblivion modding scene since release, so do some reading and make up your own mind about what mods to install and in what order to load them. Here's a few lists from other people:
My recommended list of mods is as follows:
1 - Get Oblivion Mod Manager or some similar manager and use it when ever possible. Install Oblivion Script Extender.
2 - Install the Unofficial Oblivion patch, the Unofficial Shivering Isles patch and the Unofficial Official DLC Patch. The other patches are linked to on the Unofficial Oblivion patch page I linked to.
3 - Oscuros Oblivion Overhaul
This is the big one. The one mod that fixes the single biggest issue I had with Oblivion and the main reason I preferred Morrowind, other than the superior story and more interesting setting in Morrowind. This replaces the default enemy leveling in Oblivion with a more limited leveling system. Instead of walking into a big imposing dungeon as a low level character and seeing nothing but weak bandits, you might end up facing powerful enemies you've got no chance against and will have to come back and face later when you've become stronger. Instead of being a high level character who ends up fighting leveled up bandits equipped with powerful equipment along every road, enemies who should be weaker than you stay that way. I'm having much more fun playing with this installed, even though the beginning is much harder than vanilla Oblivion.
Install the latest complete OMOD version from Planet ElderScrolls, it's linked to in the mirrors section of the Oscuros Oblivion Overhaul page on TES Nexus. Follow the OBMM instructions in the included readme pdf. Making an OBMM file for this requires following the simple instructions. I'd never done it before but it's not difficult.
Those are the main three, but other mods really change up the experience. Here's some of the ones I've got installed currently.
No POI Compass - This mod removes the GPS-like markers on the compass that tell you about places your character doesn't even know about yet. This makes it more like Morrowind in that you have to actually look around for caves and such, instead of just following a marker on the compass.
Qarl's Texture Pack - Better textures
The Lost Spires - Haven't played through it yet, it's a big quest mod that adds some hours of gameplay.
No Psychic Guards - Does what it says on the tin.
Weapon Expansion Pack for Oblivion Nthusiasts - More weapon variety
Oblivion Stutter Remover - This caps the frame rate at 30 but that can be changed. It helps with the constant stutter in the game. Also try the Silent Footsteps mod to fix an issue with low frame rates due to faulty audio hardware or drivers on some systems.
Reclaiming Sancre Tor - Another large quest mod, yet more hours added to the game.
DarNified UI - I consider this essential. Makes the interface much more useable.
Color Map Mod - This is also one I think everyone should use.
Fast Exit 2 - For whatever reason Oblivion, even without mods, insists on crashing when I quit on my Win7 64bit machine. This fixes that.
TNR Tamriel NPCs Revamped - Thank goodness for this mod. It makes NPCs less ugly. Not as large an impact on the game as the Rhedd's Heads mod for Morrowind, but I like it.
Mystic Emporium Fix - This solves the locked door problem the Mystic Emporium suffers when you've got all the DLC installed.
I could write more, but I think I'll go contract vampirism and see how that changes things in the game. With my renewed interest in Oblivion and my massive pile of shame, I think it'll be a long while before I even think of buying Skyrim.