I have quite a few custom sounds in my oblivion mod, and I was wondering is there any way to package the sounds with the esp file other than just including them in a zip? Is there any way to embed sounds into the .esp file as you could with custom textures and a Source engine map file?

Nope, you cannot embed resources into a plugin.

You can use OBMM or BSA Commander to http://cs.elderscrolls.com/constwiki/index.php/Creating_your_Own_BSA_files, however, which is how the game's original resources are all packed.