Some of the mods I'm running now!
Oscuro's Oblivion Overhaul 1.2
New version out today! Basically makes mobs appear more frequently and level in a more sensible manner. Guys that are supposed to be challenging have higher level mininums than normal, but aren't set to unlimited level so that there's no bonus for levelling your character. Other neat stuff like clothes & silverware are worth more. The readme on this is ten days long, but it's basically a lot of neat changes that make the game more rewarding. Some other peoples' mods were absorbed into this huge project, including Lyrondor's Upgraded Combat Behavior and Better Water.
Natural Weather/Water by Max Tael
More realistic lighting effects & improved textures for the skies. Shadows moving over the sun make things darker. When it gets foggy, it's more foggyish. The world isn't as dark blue and purple, it's more realistically-tinted. The water is semi-transparent from above, but not overly. Just some neat things.
Natural Wildlife
Changes the animal scripting so that animals don't fight the same as people - Every animal has a chance to run when they notice you and some are more aggressive in certain circumstances than others. They also don't just charge at you and attack until they fall over anymore.
Improved UI
Makes icons smaller and increases various windows' size. Maps up/down arrows to common menu choices.
Topless mod
Terra mode