I lost my first disc but still have my second how would I go about legally downloading this game?

The GOTY on Steam is $19.99, but I doubt you want to buy it again. Other than that, there are no there are no other ways I can think of where you can download it legally.

You may have to buy the GOTY on Steam as a last resort, but if you do I would think your saves would be fine. I have the non-Steam GOTY so I am not sure how Oblivion and Steam work.

Oh, when I first read the OP I thought well just use the second one. Then I realized that he didn't mean he had two sets like I do but that he had lost disk1 of the only set he had. I am so sorry for your loss.

I do know people who use and like Steam. I am not one of them. A download is my option of last resort, I'll goggle for a retail store near-by before any download.