Didn’t Oblivion already have the difficulty slider? You could just adjust that, no?

Not sure how much it affected the scaling. I usually just stuck to Normal difficulty. But as you went on, in Kvatch and inside Oblivion gates, instead of stunted scamps or clannfear runts, you'd start seeing spider daedra, daedroths, storm atronachs, and Xivili. Going back through Kvatch the second time, or when you get to the end of the main quest going through Imperial city you would be overwhelmed with a huge mob of Xivili and spider daedra.

You mentioned immersion breaking, and that's another big issue. Just walking around seeing bandits go from wearing fur or leather armor, to wearing glass or daedric armor, is just ridiculous.

which provided an immersive way of gating content and a real sense of achievement when you came back later with better armour and weapons to finally defeat the enemy who gave you so many problems earlier. Basically the same experience you had with Death Claws in Fallout New Vegas when compared to Fallout 3 - they aren’t just a set piece, they are a real challenge

This is precisely why I dislike level scaling at a whole. It ruins any sense of progression. And I do love the way FNV used the deathclaws and cazadores as a gating mechanism.