Yes, using the "merge to master" function of Gecko, not the normal merge. Be sure to use Bash to espify the DLC after you do this, Gecko will have turned on the ESM flag.
Just to confirm an earlier post, yes, this project is for my personal use only, though if anyone else wants to follow the below instructions for their own use, feel free, as I managed to do this using only Oblivion Mod Manager and the TESCS.
1. Combine ALL the DLC and SI .esp into one esp. It will be about 3.5 MB, which is normal (some of the data in the esps is duplicate and is removed). Name it whatever you like.
2. Extract the contents of the .bsas from all the DLC/SI into your data folder.
3. Repackage all that material into a new .bsa named EXACTLY what your combined .esp is. This will take awhile, so grab some coffee and watch the news while you wait (seriously, it took me about 3-5 minutes)
4. MOVE, don't delete the extracted files somewhere temporarily (for testing purposes), leaving your new esp and bsa.
5. Test your new files ingame. If no textures look purple and the quests begin and progress normally, you have suceeded.
6. ADDITIONAL STEP FOR PERFORMANCE: For those wanting to squeeze performance into your new bsa, install the unofficial patches BEFORE all the above steps and copy all the installed Data Folder files to another location, then uninstall the patches. Then, once you do step 2, copy everything back to your data files folder, overwriting anything it says it will overwrite.
For further performance, you can also reduce all normal map files to 2 x 2 size (like Bomrets DeNormal Mapper mod) before recompiling your new BSA, for some more performance gain (this will mildly impact graphics quality). Also, you can use PyFFI to optimize all the meshes for even more performance.
I have tested all the above and thus far have found no errors. Make sure to follow these steps precisely, especially the part about unpacking the BSA DIRECTLY into the Oblivion Data files folder. Elsewhere will cause mesh/texture errors during repackaging.
P.S.- This should also allow the new .esp to be modified (keep a backup around though!), but this remains untested.