Usually mods are already packaged correctly--you'll need to unzip it to your Data folder (though some mods are strangely packaged. Just make sure the .esp goes into the Data folder and any other accompanying folders go there, too.)
After installing the mod, you'll have to activate it when you first run Oblivion. Instead of pressing 'Play' when you start up the game, press 'Data Files' and check the correct plugin.





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