Oblivion: Mod Hell
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1. Too many large mods are needed.
The biggest problem is that the game suffers from an almost complete lack of polish. Bugs, broken quests, bad balance, outrageous polygon counts on simple objects, textures which are much too large or too small for their intended use, bad leveling system, cumbersome interface, screwed up voice files, game balance issues, etc etc etc. There is no aspect of the game which can't be greatly improved through the application of a suitable mod. There is just so much in this game that needs attention that the required mods are too numerous and far-reaching. In an ideal world, the default game should be fine, and then mods could be applied to offer greater replay value. To require a half dozen mods just to get the core of the game running is to ask too much of the modding system.
2. The mod repositories are in shambles.
Over the last couple of years entire Oblivion sites have come and gone, been bought out, moved, or just reorganized their database. Which means many links are 404's. There is no one site that has all mods. All of them require some sort of account creation before you can download. You're going to be going through the register » CAPTCHA » email confirmation » login process more than once in your quest to get the files you need. During my search I encountered popup ads, download queues, fake download links, broken links, and large NSFW advertisements.
It really is insane that they will put the user through such merciless hassle to let them have a 20kb file, which is smaller than any one of the half dozen ads on every page.
Since modding is such a huge part of the game, Bethesda probably should have hosted the files themselves, similar to what Maxis did with the Sims Exchange.
3. Mods are too complex to install and activate.
Some mods come in the default .esp file format. You activate these mods when launching the game. Some come in a different .omod format and require the Oblivion Mod Manager in order to install and activate. Others are just a collection of files for you to place in various directories, along with some cryptic commands to add to configuration files. Some require a combination of the above.
Some mods don't work with other mods, or they work, but only if you install them in the proper order, or only with certain versions.