Briefly, eh? I'll try. No promises.
One major problem with Luck IS the capping code. If your skill is at 100, Luck gives no benefit. If your Luck is at 100, skills over 80 give no benefit (until you hit 100 and get the master perk). This is a weird enough interaction in the vanilla game, but consider smooth-leveling mods where attributes rise directly from skill increases rather than by the player saying so: how do you handle it? Raise it along with everything else, because no skills affect it? Mechanically bad -- early in the game you wind up making everything easier than it should be, and later in the game it might as well have stayed at 50; and just for fun, it can't raise a skill above 100, making it dead even sooner if the user runs an uncapper. Doing the same thing but letting it start below 50, so at least you're not giving fat bonuses right out the gate? Equally bad, because the penalties actually hurt more than the bonuses help (and most players don't understand the mechanics of it anyway, especially if it causes skills to hit zero, which can have nasty tech support ramifications). Currently nGCD just leaves it at 50 by default, because anything else breaks something. But this is terribly unpopular, because the
idea of luck is great and everyone wants to see that number go up... so I've got an option in there to do as mentioned above, and many users activate that option against my suggestions that they don't, and weird things happen like ingredients not producing effects when eaten and everyone gets confused as to why (including me, often enough).
So Luck does far too much for a low-level character, and pathetically little for a high-level character; but only a high-level character can have high Luck. As it stands, the only place I personally feel comfortable using it (as a designer) is in Fortify/Drain Ability effects, where it's not a part of the character but a deliberate bonus or penalty. Of course, it's rather unbalanced there too because with the default settings, for example, 5 points of Luck (equals 2 points of skill) has a slightly bigger effect on weapon damage than 5 points of Strength -- AND Luck affects every other skill too. (This, at least, can potentially be fixed with OBME by breaking Luck out separate from the other attributes for those effects.)
In vanilla, it's questionable. For a modder, especially one who has to take other mods into account, it's basically unworkable and best left alone. But no player (including the one sharing brainspace with the modder) wants to see it left alone. Conundrum, baby.
A big problem is that very little in Oblivion is actually random, so there's nowhere for Luck to behave as, well, Luck. But it's a traditional TES attribute, so it's still there and has to do
something. I'd sure like to come up with something
better...