Alright, so ... as many modelers here would know: Blender allows for non-realtime Cloth Simulations.
This has already been used in the past to make realistic looking, Static clothes such as Cloaks and Capes (http://wiki.tesnexus.com/index.php/Creating_a_cape_using_Blender).
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I am suggesting an extension of this technique which will allow the capes to actually animate properly when the character is moving\fighting. The technique can also be used to make and other such things like flowing banners and curtains.
Basically the idea is to turn the cloth simulation into Shape Key animations ... which can then be exported into NIFs as Morphs.
To do this simply export the cloth simulation as .mdd ... then remove the baked frames and re-import the mdd onto your cloth (this will turn the cloth simulation into shape keys).
Now you can export your nif as usual and the animation will be exported as Morphs:
Example NIF: (these are NOT set up to work in oblivion 'as is' ... open it in nifscope instead and view the animation).
- Sheet and Block: https://docs.google.com/open?id=0Bx-LiQamBQ_IYzZkNjAzYWUtYmZjZC00MmFlLWJmNGYtNDc4YjFmMWE5YTRk
- Banner on WIndy Day: https://docs.google.com/open?id=0Bx-LiQamBQ_INTk1MTIxZWEtYTNmMC00MmQyLWJmZGEtMWZhN2NmNjhlNGRj