Why exactly is moon sugar missing completely from Oblivion? Is it because of the lore or did the developers just chose not to add it?
They chose not to bother.
Also could someone explain how exactly would a moon sugar plant look?
They're sugarcanes.
Would it be alright(lore-wise) to add a little moon sugar to Oblivion via mod?
Well, no, because I'd strongly advise you to use the moon sugar from http://wrye.ufrealms.net/Cobl.html instead; for technical reasons. It is much better to have
one type of moon sugar than to mysteriously have ten different stacks of the same ingredient.