I recently encountered it for the first time in Black Rock Cave, in the secret room with the pirate ship and ghosts you unlock by hitting the two switches on the above level of the dungeon.
If you Google Oblivion Black Rock you will find a wiki page about the area.
Basically, the NPC ghost effect is somehow conflicting with the combination of water and fog so that if any of the ghosts are contacting the water, alive or dead, whole sections or layers of the other visuals get blocked out by a visual anomaly. Parts of my bow in first person for example, disappear behind an invisible blob.
It is sort of like when you would set ugridstoload in the INI and whole sections of water would vanish, only with things other than water. Bits of the water get choppy also.
It seems like a rendering issue, so I regenerated my INI file, removed OBGE, even tried reinstalling the latest NVIDIA drivers from scratch using a driver cleaner, and nothing seems to effect it.
I haven’t changed any mods, but then it could be I just never ran into a situation with ghost shaders plus water plus fog that created the glitch before now.
Here is my load order anyway:
Spoiler
Active Mod Files:00 Oblivion.esm01 Francesco's Leveled Creatures-Items Mod.esm02 Francesco's Optional New Items Add-On.esm [Version 4.5bSI]03 Oscuro's_Oblivion_Overhaul.esm04 Armamentarium.esm [Version 1.35]05 Mart's Monster Mod.esm06 Cobl Main.esm [Version 1.72]07 Artifacts.esm [Version 1.1]08 FCOM_Convergence.esm09 HorseCombatMaster.esm0A All Natural Base.esm [Version 1.3]0B Waalx Animals & Creatures.esm0C WAC.esp0D WAC - OverSpawn.esp0E WAC - TCOS.esp0F WAC - TCOS Shops.esp [Version 03]10 WAC - Magic.esp11 WAC - BlackBootDungeon.esp12 WAC - Player Summons.esp13 WAC - Crowded Roads Revisited.esp [Version 1.1]14 WAC - Horses.esp15 WAC - Birds&Insects.esp16 Streamline 3.1.esp17 DLCShiveringIsles.esp18 DLCHorseArmor.esp19 phinix_dual-wield_imports.esp1A 001-unofficial_oblivion_patch.esp [Version 3.2.10]1B 002-unofficial_si_patch.esp1C 003-silent_player_voice.esp1D 004-mrp_loading_area.esp++ 005-no_random_gatestorms.esp1E 006-full_harvest.esp [Version 1.0]1F 007-book_jackets_oblivion.esp++ 008-lusty_argonian_cover.esp++ 009-book_jackets_si.esp++ 010-va_better_gold.esp++ 011-cm_better_wine_si.esp20 012-smarter_mercantile.esp++ 013-phinix-waterfix.esp21 014-alive_waters.esp22 015-aw-koi_addon.esp23 016-aw-fish_addon.esp++ 017-skeleton_shaders.esp24 018-clocks_of_cyrodiil.esp25 019-ad_tree_home.esp26 020-legion_horse_armor.esp27 021-midas_magic.esp28 022-sg1gearspells.esp29 023-spell_and_item_delete.esp2A 101-harvest_flora.esp [Version 3.0.0]++ 102-harvest_flora_si.esp [Version 3.0.0]2B 103-francescos_optional_more_enemies.esp2C 104-francescos_optional_stronger_enemies.esp2D 105-francescos_optional_stronger_bosses.esp2E 106-francescos_optional_guards.esp++ 107-fcom_francescos.esp [Version 0.9.9]++ 108-fcom_francescos_items.esp [Version 0.9.9]2F 109-fcom_francescos_named_bosses.esp [Version 0.9.9]30 110-oscuros_oblivion_overhaul.esp31 111-ooo-map_markers_stock.esp [Version 1.33]32 112-ooo-no_guild_ownership.esp [Version 1.33]33 113-ooo-water_fish.esp [Version 1.34]34 113b-oblivion_warcryEV.esp [Version 1.09]35 114-bobs_armory_oblivion.esp36 114c-loths_blunt_weapons-npcs.esp37 114b-loths_blunt_weapons-mobs.esp38 115-fcom_bobs_armory.esp [Version 0.9.9]++ 116-armamentarium_llooo.esp [Version 2.01]++ 117-armamentarium_llmagicooo.esp [Version 1.35]++ 118-armamentarium_llvendors.esp [Version 1.35]39 119-armamentarium_artifacts.esp [Version 1.35]3A 120-artifacts.esp [Version 1.1]++ 121-artifacts_arma_complete_addon.esp [Version 1.0]3B 121b-roberts_armamentium_female.esp++ 122-mmm-si.esp [Version 3.7b3p3]3C 123-mmm-diverse_waterlife.esp [Version 3.7b3p3f]3D 124-mmm-more_wilderness_life.esp [Version 3.7b3p3]++ 125-mmm-more_passive_wildlife.esp [Version 3.7b3p3]3E 126-mmm-hunting&craft.esp [Version 3.7b3p3]3F 127-mmm-gem&dust.esp [Version 3.7b3p3]++ 128-mmm-diverse_runeskulls_gd.esp.esp [Version 3.7b3p3]++ 130-mmm-slof_horses.esp [Version 3.7b3p3]++ 131-mmm-slof_horses_armor.esp [Version 0.91]40 131a-cobl_glue.esp [Version 1.72]41 131b-cobl_si.esp [Version 1.63]42 131c-ooo1.32-cobl.esp [Version 1.72]++ 131d-mmm-cobl.esp [Version 1.73]43 131e-salmo_the_baker-cobl.esp [Version 3.08]++ 131f-mmm_runeskull_rebalance_B2.esp [Version Beta]44 132-fcom_convergence.esp45 133-fcom_real_swords.esp [Version 0.9.9]++ 134-fcom_entropic_order_rebalance.esp [Version 0.9.9beta2]46 134b-fcom_realswords.esp [Version 0.9.9]47 134c-fcom_warcry.esp [Version 0.9.9MB5]++ 135-OMOBS_SI.esp [Version 2.0]48 ElsweyrAnequina.esp++ ElsweyrAnequinaFemaleBody.esp++ WAC - Elsweyr Anequina.esp49 201-rens_beauty_pack_full.esp++ 202-roberts_male_body5.esp4A 203-exnem_clothing.esp++ 204-hgec_armor.esp4B 205-slofs_appendages.esp++ 206-initial_glow-all.esp++ improved_soulgems.esp [Version 1.11]4C 301-dmc_stylish-specialanims.esp4D 302-stylish_jump.esp4E 303-mayus_animation_overhaul.esp4F advanced_window_lighting_system.esp50 immersive_interiors.esp [Version 0.7]51 immersive_interiors-lights_addon.esp [Version 0.7]52 Romuska Fantasy Store.esp53 phinix_master_summon.esp54 phinix_portable_tent.esp55 All Natural.esp [Version 1.3]56 All Natural - SI.esp [Version 1.3]57 All Natural - Real Lights.esp [Version 1.3]++ All Natural - MMM Patch.esp [Version 1.3]58 Bashed Patch, 0.esp59 DeadlyReflex 5 - Combat Moves.esp
I know it is the combination of ghost + water + fog because if I disable any dead ghosts in the water, the ones not in the water don’t cause the glitch. If I then drag their bodies into the water, the glitch is back.