So here's the deal. Oblivion stops responding as I enter Arena Bloodworks after defeating a khadjit warrior for a bloodletter rank. It works fine if I start oblivion without OBSE though. So how do I learn which of the mods causes this and disable it?

Obviously it's caused by 1 of your mods that require OBSE. The easiest method is to just disable half your mods and test. Then depending on the outcome enable or disable mods until you find the 1 causing the issue.