Chris Key let me know that he's working with his father (now that's totally cool) on a mod for Oblivion called "Open Cities." Basically, they're redoing the cities so that they don't load separately when you enter them--it's one world, similar to Morrowind. It's a great idea for a mod and the screenshots are fantastic. Here's a link to the thread at the Elder Scrolls forums if you're interested (two threads--the first got so long that it was closed):
Open Cities 1,
Open Cities 2.
Chorrol is the first city to be converted. And here's the thread about the next release:
Anvil.