I am looking for hair mods that would improve and vary the hairstyles of npcs and enemies. In particular, are there any mods that improve the horrible blond hair of vanilla Oblivion? It looks a horrible bright yellow. Does not look natural. Thanks for any suggestions.

3. Beautification
Today you can combine all cosmetic mods using Wrye Bash. A very powerful option, which makes big cosmetic plugins kind of unnecessary. Therefore there is a "bash ready" version included ("Light"), which doesn't have any beauty additions included. Aside from that Race Balancing Project is a relict of times past.
It's one of the biggest beautification mods out there. These mods are included:
- Ren's beauty pack?
- Capucine's character expansion*
- Babe's hairs?
- Corean hair
- Saram hair
- Suhlwa hair
- HS-Hair?
- Soya's hair pack?
- 2ch hair explosion resources?
- throttlekitty's hair pack
- kafeidotour's short hair style*
- Eyes for Elves*
- Elveon's photorealistic eyes*
(* = unplayable by default, can be unlocked with a module)
(? = I've conformulated these hairs, so they match your character's head)

Which means there are dozens of new hairs and eyes to choose from. They're also selectable for custom races. If you want to play a Xivilai with a corean hair style, you can do it.

But it doesn't stop here. Race Balancing Project is not a relict of times past, because there's something that a cosmetic combination with Wrye Bash can't do: Enhancing NPCs! As you surely have noticed, all Khajiit in Oblivion have the same eye color. The same is true for Orcs, Argonian, and Dark Elves. All six other races share only three eye colors. That's a bit repetive, isn't it? And let's not start on hair styles...

What RBP includes is an optional module to distribute it's new eyes and hairs to NPCs. More than thousand NPCs are changed, gaining new eye colors and / or hair styles. I've given each race (more correctly NPCs of that race) a set of eye colors, like Nords got the more bright colors, Wood Elves odd colors (like lilac, and of course some have their black eyes from Morrowind), Mages have glowy versions of their eyes, and Khajiit, Dunmer, Orcs and Argonian have also much more variety.
Pictures do tell more than thousand words, so here come a few examples (and you can get a couple of examples for new eyes and hairs from them):
http://www.tikanderoga.net/bg2408/pics/tes/NPCDiversity3.jpg
http://www.tikanderoga.net/bg2408/pics/tes/NPCDiversity4.jpg
http://www.tikanderoga.net/bg2408/pics/tes/NPCDiversity5.jpg
http://www.tikanderoga.net/bg2408/pics/tes/NPCDiversity2.jpg (Note: Older eye textures used, "shadowy" eye white is gone now)
http://www.tikanderoga.net/bg2408/pics/tes/bgBalancingOptionalEyes.jpg (Note: Even older textures used)

If you want to have TNR's new faces with NPCDiversity's new eyes and hairs, there's a merged version available in RBP's download! And a file for Kvatch Rebuilt, too!