I noticed two big problems with the weapons/armour while playing Oblivion; firstly it's not possible to buy good weapons at a low level, and secondly there's not really any difference initially between the damage of one weapon and another because weapon damage/armour protection is based on the characters skill in using it, so there's no reason to steal anything or obtain any good weapons until one is a high level character, are there any mods available that address these issues?

Three ways about it.

1. Mods that adjust stats on a per item basis. Like Medieval Oblivion Balance System (AKA MOBS).
2. Mods that adjust the damage formula through scripts (Duke Patrick mods, Kuertee Stat based damage, Phitt's Phighting Phixes, Deadly Reflex).
3. Overhauls that adjust and address the availability of items (often these also do what point 1 describes above): OOO, Frans, TIE, Warcry, Warcry New Dimensions.

So depending on what else you want helps decide what to add.