When i posted this same question, i got a great response.
"Probably the same reason Cyrodil is no longer a jungle and has less people in it than Greenland"
It may be a great response if you're a Danish politician, but, for the lore forum, it's just another example of bias against Oblivion that has resulted in another question not being answered.
There is an explanation, one which I think you already know. Akavir was inhabited by humans before the arrival of the Tsaesci, which resulted in the destruction of human culture (even if they weren't eaten by the snakes, who are said to appear something like humans, and who brought many Akaviri immigrants to Tamriel when they ruled it for more than four hundred years without eating anyone). It was the humans that invaded Cyrodiil.
The Blades armour is based on Akaviri designs.
where the Empire at least claims to hold several Small Islands
Those aren't anywhere near Akavir. They weren't hit by the storms, so they're probably near Tamriel.
we don't know for sure whether Tsaesci are actually snakes
There are descriptions of their appearance in the 2920 series, and, although a few things about them appear human, they are definitely snakes.
Emperor Reman III remembered that he had agreed to this several months before and forgotten about it. One combatant was the Potentate's son, Savirien-Chorak, a glistening ivory-yellow eel, gripping his katana and wakizashi with his thin, deceptively weak looking arms. The other was the Emperor's son, Prince Juilek, in ebony armor with a savage Orcish helm, shield and longsword at his side.