I haven't played Oblivion in a long time, so I have forgotten a lot of the legitimate ways to make money.
However, I know that in the Imperial City Market District, there are a load of barrels by Red Diamond Jewellery with food like apples, corn, etc. They all have the property 'Restore Fatigue'. Go yo your alchemy equipment, and mix everything you have! Your Alchemy skill will improve and you'll make some honest gold, too.
Rockmilk Cave, North of Leyawiin (westside of the water). Three levels with marauders and bandits. Various chests of loot.
Gets better around level 12, when they start wielding glass daggers, which will get you rich
quick.
And obviously, good for practicing skills no matter what kind of character you are. Thieves level their sneaking and stabbing, warriors level their Armorer, armor, weapon choice, and others. Mages, well, you get the idea.
Just remember to wait 3 days after you sell stuff and Fast Travel back to the entrance.
I actively farm this place when I'm not roleplaying.
There's like, no downside to it. Unless you find this kind of thing boring.