Okay so this is my first time playing oblivion, and I noticed somewhere along the SE side of the city there is a giant pit full of dead bodies, along with a dead noble.
Also, the house of Demret has the entire family slain while the husband is hanging from a ceiling.

Does anyone know what this means? Quest related? Or something else?

Well, it's definitely mod related, but I'm not sure which mod it would be. Posting your load order could help.

Also, if you really are completely new to Oblivion, I'd highly recommend not using mods on your first playthrough, or at least not right at the beginning. Mods are really meant to add stuff to the game that you felt was missing in vanilla, and you don't really get to get a true feel for the game having them on so soon. It's your choice though.

That sounds like Better Cities Bruma to me. You can ask the guys on that thread what its supposed to mean, but I don't think they would know as these were things added by the original maker of the Bruma part of that mod.

btw, those guys are all supposed to be dead, you're not seeing anything out of the ordinary.