I was just replaying morrowind, ahving grown tired of oblivion's leveled system (as I do regularly) and I noticed that our favorite skooma addict says he is going to the IC. This makes me think that he should have been somewhere in Oblivion, given that the Imperial City was part of the game.
Before Oblivion was released, I believe there was a rumor that Caius would be a character in the game, but apparently, it was either false or they changed their minds.