Steam is fine. Any horror stories you may have heard about modding digital downloads of Oblivion are probably referring to encrypted digital versions such as Impulse and D2D(both can't use OBSE), or are actually issues with Windows7 and Vista.
By default, Steam will install Oblivion in Program Files if you have Win7 or Vista. User Account Controls is rather paranoid about some of the things mods are designed to do, and will sometimes interfere with your mods or installation of them. It will also enjoy moving some of your files to Virtual Store at random times when you are trying to make. edit, or save a mod in the Construction Set. For that reason, if you have either of those operating systems, you might want to follow this guide from Steam.
https://support.steampowered.com/kb_article.php?p_faqid=231
Installing to a less protected location like C:\Games\Steam or D:\Games\Steam can save you some headaches, and the instructions for moving an existing installation do work. No need to redownload the game.