It doesn't entirely remove level scaling, but it sets limits on it. So that some creatures will never go below or above certain levels, and creatures from high or low levels can be found pretty much all the time.
Other mods can interfere with it, though, so a listing of your mods, and the order in which they load would be helpful. Wrye Bash or OBMM are best for this listing (wrye bash preferred).
You also have to wait about four days somewhere away from everything for the original creatures to reset and OOO to take over.
Plus, your level, and the type of bandit will have an effect on it.