Aah... to be Argonian and to find a wereshark twenty miles out... but in all seriousness, there should definitely be some areas where water breathing is a must. Except for the occasional ruin and fleeing into the lakes, I found a distinct lack of need for water breathing in Oblivion. But I guess it did what it was made for, so I can't really complain. Though drowning should drastically drain fatigue, as well as health. Make it a quick KO leading to death instead of "how many healing spells/potions can I spam?" When you run out of air, you should get hit with the effects of it.