You are aware that Oblivion supports having more than 1 worldspace right? What you are looking to achieve as your own side project would probably work better as a new worldspace built from scratch.
You might also want to look at the Open Cities mods, they seemed to tackle the quest problem easily enough. The regional bounty mod might also be worth noting.
Indeed - I looked at worldspaces a little while ago, however, while I said that I don't mind hard work, I also don't want to re-invent the wheel! If there was a way (that would be easier than rebuilding the whole world) of removing all the generic stuff from Tamriel and re-using it and its buildings, then that's the way Id go, hence the post.
As for Open Cities and Regional Bounty mods, both are favorites of mine when I play, and no doubt Ill learn a lot from them, but Id like to take things a step further and include similar functionality in a single mod that is, as I said, a blank canvas waiting to be manipulated.
Judging from the things Iv read so far, and your own comments (thanks by the way) I think it might be an idea to use a separate worldspace after all. As I said, this was about looking for a (slightly) quicker alternative to a total rebuild of the world, but it looks as if Ill have to go that way in any case.
Anyway, thanks for your ideas - its always better to get other perspectives before you jump, and if you come up with any other ideas I'm certainly open to them.
Cheers
MVK