I saw a discussion about this recently, and someone there posted the formula for spell cost, and luck wasn't in the equation. Unfortunately I neither have the formula present nor the site/topic I saw it in. But in case that formula was indeed correct (others did confirm it iirc), luck will not decrease spell cost.

Edit: found the formula: ActualCost = BaseCost * (1.4 - 0.012 * Skill)
From http://www.uesp.net/wiki/Oblivion:Magic_Overview#Spells

Edit 2: Spoke too soon, luck IS in the equation. From the link above:
The Skill in the cost equation is further modified by your Luck attribute. For every 5 points of Luck above 50, your Skill is effectively increased by 2 points relative to the value shown on the Skills page, up to a maximum of 100 Skill. Note that Intelligence, Willpower, and Personality have no impact on the cost of the spells from those schools of magic these attributes are related to (i.e., the total amount of magicka required to cast spells is determined by your skills, not by the attributes which govern those skills save your Luck). Instead, Intelligence and Willpower affect your spellcasting abilities via your Magicka reserves: Intelligence determines how much total magicka you have available while Willpower controls how quickly your magicka regenerates after you cast a spell.

So you're saying that with Luck at 100, a SKILL at 100 is more like the skill at 125?

It would be 120, not 125, but the limit is 100. So with luck at 100, a SKILL (indeed) at level 80 will have spell costs as if it were at level 100.

Gotcha, thanks.