I've progressed far enough with this to comfortably publicise this project with promise of releasing it.
My previous modding work has very much centered around Skyrim characters (see: Ethereal Elven Overhaul), but a cursory examination of Oblivion's character system made me realize I could do a whole bunch to significantly improve the looks of all races and all playable characters and NPCs. The changes are rather comprehensive:
-Each race now has their own dedicated head mesh that has been shaped to really push their identifying looks
-New skin textures, handpainted
-Up to 12 new normal maps sculpted for each race with rebuilt age slider elements
-General aesthetic tweaks to each race and some individual NPCs to make the most out of the new assets
-Planned: Revisiting the shape of nonhuman races' ears
With properly sculpted normals the characters' faces gain tons more depth and personality. I've also distributed face types more gradually along the age slider - your character won't turn wrinkly the instant you nudge the slider forward. The faces look more believable and the general visual direction I've followed with my asset creation has been strongly based on both Skyrim and Morrowind's aesthetics.
Another major problem I wanted to address was how hard it has been to create even-looking and aesthetically appealing faces in the game. The results with these changes have been highly positive so far and it's really easy to get consistently pleasant faces with balanced proportions in just a few slider adjustments. Do note that aesthetic appeal doesn't necessarily mean conventionally attractive - this isn't a beautification mod, nor does it erase the 'ugly' aspects of TES races, it just aims to present the spectrum of it in a way that's easier on the eyes than vanilla's delivery.
Some screenshots so far:
http://25.media.tumblr.com/d79937e9ecd6218402a843cf3618d0b8/tumblr_mm345st9BX1s8q3l4o2_1280.jpg
http://25.media.tumblr.com/8809f522d29557ebddd82257aea01dea/tumblr_mlyzvviq3j1s8q3l4o1_1280.jpg
http://25.media.tumblr.com/4d42b29408b92ef465d235542c2d885f/tumblr_mlyy9eyDYZ1s8q3l4o2_1280.jpg
http://25.media.tumblr.com/92b513658db898a7d3f81385186d6455/tumblr_mlxpfdsiTY1s8q3l4o1_1280.jpg
http://24.media.tumblr.com/c72db9c8f4a6cad919023ba04b5f3fdc/tumblr_mlxsiuSxbC1s8q3l4o1_1280.jpg
http://24.media.tumblr.com/956aa2f79f02ecd1814caba29ce4aac1/tumblr_mlxmc2l7Rq1s8q3l4o1_1280.jpg
http://25.media.tumblr.com/26d28b274df1d7f7ec4d494e30097411/tumblr_mlxceaxUHl1s8q3l4o1_1280.jpg
http://25.media.tumblr.com/2b12a82f89d51729e163f74464d58844/tumblr_mm345st9BX1s8q3l4o1_1280.jpg
http://24.media.tumblr.com/a45e4208c91e7c2e5eeff4985c995f63/tumblr_mm367sqALo1s8q3l4o2_1280.jpg
http://24.media.tumblr.com/efe9ec2b4d7a8ea451758f6668faff37/tumblr_mm367sqALo1s8q3l4o1_1280.jpg
http://25.media.tumblr.com/f91aefa6ceb8a7177a2f20448bf4d9fe/tumblr_mm4erbadPO1s8q3l4o1_1280.jpg
I'm still adding customisation features to some races and refining existing assets, I'll get a substantial comparison set once I've reached the 'feature complete' point with this, which ought to be quite soon.
You can also follow my progress on http://nuskamods.tumblr.com/
Feedback and ideas are welcome at this stage!