Before I start, learn to use the oblivion mod manager, and also install the oblivion script extender. OBMM and OBSE are all but required for all but the most simple addons. I'll let someone else explain them as I've done it recently in a thread with this exact same title. I don't want to have to do it again.
anything that increases the textures and makes the game look better is good
Anything that makes the map prettier is good
The Unofficial Oblivion Patch mod is important, and if you want Obscuro's Oblivion Mod, it's a good mod.. but it changes the game a bit too much for my liking.
There are lots of mods that do those two things, and I don't remember off the top of my head.
For adjusting the level up system to not be abusive to those who actually want to use their Major Skills, I suggest S.P.A.M.. It makes it so you can set your level up bonuses as static numbers, instead of being based on your skill use.
Another mod I like is the Ayeleid Well mod.. it basically turns the Ayeleid Wells into permanent Magicka bonuses.. with an extra bonus if you find them all. Gives the game an extra "collect them all" minigame that I really like.
Another important addon, if you play a thief type character is "No Psychic Guards". It does what it says, it makes it so that guards will not notice you if you are properly sneaked.
Another Important Addon is the levelled quest rewards.. Basically allowing you to complete quests at your leisure, without having to wait until you're high level before finishing them to get the best rewards.
I also like addons that fix the archery, by speeding up the arrows... There are addons that can improve the speed of the arrow depending on the quality of the arrow.. so more powerful arrows are also faster.. it makes sniping a lot more entertaining.
Another good edition is to change Night Eye.. I love the Night Eye spell, but I hate the blue color. You can get different addons that change it in different ways. Also, if you choose to play a Khajiit, there are addons that make their Night Eye racial Toggled rather then a timed cast, and also another addon that makes it automatic if you go into a dark area... it makes it a bit more authentic, but I found the game was a poor judge of when Night Eye was required.