I was playing Oblivion about an hour ago and I came across a place called Shetcombe farm while roaming the countryside near Kvatch. I entered the farm (which I had never come across before) and was prompted with a message... an introduction to a quest. I'll spare all the details, but I found The Sunken One and while it appears to be just a normal storm atronach in appearance, the whole quest, its appearance (right out of thin air after I obtained the third page of Slythe Seringi's journal), and Slythe's implications of its power and importance (particularly this part) make me wonder. Is Slythe just a delusional fool or is there something more to The Sunken One? What do you think? Here are the three pages of Slythe's journal:

http://www.uesp.net/wiki/Oblivion:Slythe%27s_Journal,_page_1

http://www.uesp.net/wiki/Oblivion:Slythe%27s_Journal,_page_2

http://www.uesp.net/wiki/Oblivion:Slythe%27s_Journal,_page_3

Personally, I think he's just delusional. However, the quest seems very Lovecraftian, with ancient gods that no one knows about. So it may just be based off of that, or at least that's my opinion. I left it alive and snuck out. I love ancient secrets

I don't really remember, but it was my impression that the Sunken One's appearance as "just an ordinary storm atronach" was just gameplay limitations. It certainly seemed to be something more Lovecraftian and unusual.

I had figured the "sunken one" was just a normal frost atronach that happened to be in that cave. Seringi new about the atronach and somehow became infatuated with it, then witnessed the destruction of Kvatch and made a bad inference of correlation to causation. In reality there was nothing special about the "sunken one" at all.