I'm into gameplay mods, and I suggest:
Midas Magic - You mention magic systems, and this one is the king. Ridiculously big mod, with a zillion new spells and effects. I haven't really tried it myself, because I rarely play a mage. But it's currently numero uno on TESNEXUS top 100.
Deadly Reflex - makes combat MUCH more entertaining and involved.
Oblivion XP - Turns Oblivion levelling system into a traditional XP based game, with XP being rewarded for pretty much everything you do. This is obviously down to taste, but I think it's the perfect way to enjoy the game.
Francesco's non scaling mod - Get rid of the horrible scaling system, and doesn't mess with too much else, and you can easily customize what you want it to do.
Thieves Arsenal - Basically makes thievery/stealth work a lot like the Thief games. With functional Blackjack, Water Arrows, Gas Arrows, etc.
Stealth Overhaul - A smaller mod that tweaks stealth to work better. Like backstab being much more efficient with a dagger, and generally makes stealth more realistic and useful.
Enhanced Economy - A ton of stuff related to merchants and prices. One of the best features is that you no longer use the silly haggle-system, and instead it autocalculates based on your skill and the skill of the merchant.
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As for a handful of other vital mods:
Oblivion Stutter Remover - A simple mod, that almost entirely removes the stuttering in the game. At least on my setup, it almost never stutters AT ALL.
Tamriel VWD - In my opinion the best compromise of having key buildings visible when distant, with a very slight performance impact. I know there are lots of popular ones out there, but in my experience they're all WAY too demanding for what you gain.
Qarl's Texture pack 3 - Not much to say except it looks fantastic. Especially the indoor textures are beautiful and detailed. These work in tandem with a bunch of other mods, especially related to LOD and distant textures. I can't recall the names, but this pack is probably the most essential visual addition in my mind.
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That's about it for now